Is a Crisis in Housing Affordability Good for Investors?

by Tim Herriage

Is a Crisis in Housing Affordability Good for Investors?

by Tim Herriage

by Tim Herriage

This is a classic good news bad news story, with short-, mid- and long-term benefits for investors, flip and rental provided you understand the issues and have access to good advice.
RealtyTrac/Attom Data Solutions 2016 Q3 Home Affordability Index reports that one in four of the 414 most populous counties (of approximately 3200 counties) in the U. S. no longer fall within traditional affordability criteria as measured by their index. In 89% of these markets, house prices rose faster than incomes. House prices are up 60% since Q’2 2012, while wages are stagnant with only 6% growth over the same period.
Zillow’s August Real Estate Market Report ranked Dallas as the second fastest appreciating housing market with year-over-year home prices increasing at 12% to $193,900, and rent prices increasing 3.6% to an average $1,543. Meanwhile for sale housing inventory dropped by 20.6%.
FACTS
House price rises are outpacing income increases. This means home ownership remains out of reach for many prospective buyers, as they reach traditional home buying demographic. Due to the lack of well-paying job creation in all but a few markets, buyers cannot easily qualify for loans thus keeping a home purchase out of reach for many.
An “….unhealthy combination (rising prices and wage declines) resulted in worsening affordability in 63% of markets despite mortgage rates that are down 45 basis points from a year ago,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.
GOOD NEWS
These leading markets lead for a reason. They are economic centers creating well-paying jobs that attract people. This is not going to change quickly so they remain good markets for existing investors and those that can afford to buy into them provided rental houses can be found that still generate positive cash flow. For a real investor, appreciation or tax benefits should still be considered bonuses, although real, cannot be relied on over the long term.
SUGGESTED FIXES?
The solutions to housing affordability lie beyond housing specifically, but in growing the economy generally. First, incomes needed to qualify for a loan to buy a home (income to debt ratio) must be met with available reasonably priced housing inventory. This begins with jobs with real income growth and reasonable financing to make building (homebuilders) and buying (as borrowers) feasible. These issues are not gated by the building or realty industry but are subject to regulatory and economic forces.
HOUSING AS A POLITICAL PLATFORM
The fact we have heard few specifics on housing from the presidential candidates is odd, as there is general recognition that housing is the first engine of economic expansion. Over-restrictive financial regulation (FHFA, CFPB, etc.,) developed over the last 8 years have effectively discouraged building all but unaffordable homes and luxury apartments now approaching oversupply. Housing inventory, where it is needed at price points needed, is delayed or missing.
HOW INVESTORS CAN BENEFIT
Buy-to-rent investors and landlords can expect this beneficial situation remain in key markets for at least the next 36 months as currently land availability, entitlement fees, financing and building costs are all working against increasing affordable inventory and no reasonable fixes have been proposed.
If you are a flipper needing homeowner borrowing help 2020 REI loan consultants at 3L Finance can help.
For rental owners the most critical argument rests in maximizing income, without aggravating rental vacancy rate by being the last to rent as the most expensive rental in the neighborhood.
Dallas/Fort Worth is just such a market where properties are in demand and inventory scarce with both house prices and rent rates still appreciating, but at a slower rate. 2020 REI can help you invest in this active market with advice, buying or selling investment grade property. Go here for help.

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