Finding the Best Deals: Top 5 Cities for Investors

Investors have accounted for a greater bulk of real estate transactions in recent months as they’ve looked to snag some of the ultra-low prices from distressed sales and other properties. In fact, investors are expected to outnumber traditional home buyers three to one in the next two years, according to a recent study by Move Inc.

Inman News recently conducted an analysis of hundreds of real estate markets to determine the top markets for real estate investors, taking into account such factors as the median sales price, loan data, foreclosure sales and discount statistics, population, and unemployment data.

Here are the top five cities that Inman News found as the best real estate markets for investors:

1. Indianapolis-Carmel, Ind.
2. Winchester, Va.-W.Va.
3. Gainesville, Fla.
4. Tuscon, Ariz.
5. Tallahassee, Fla.

View a complete list of the Top 10 cities for investors at Inman News.

In its analysis, Inman also found that 52 percent of the investors surveyed said they would be “somewhat likely” to buy another investment property or vacation home in the next two years.

Source: “10 Best Markets for Real Estate Investors,” Inman News (June 3, 2011)

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Suburbs Being Reshaped by Lack of Kids

Children playing outside is a natural picture of the American suburban landscape. But in 2011, people are wondering — where did all the kids go?

William Frey, demographer at the Brookings Institution, calls children in the suburbs an “endangered species.”

The dropping children population is reshaping the look of suburbs, experts say. As more women delay having children and more families have fewer children, the childhood population under the age of 18 has dropped in 95 percent of U.S. counties since 2000, according to an analysis by USA Today of 2010 Census data. Despite a 9.7 percent growth in the overall population, the number of households with children under age 18 has remained at 38 million since 2000 — that’s fewer than the number of households with dogs (which stands at 43 million).

“All of a sudden, there may technically be no children in the neighborhood,” says James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy, Rutgers University.

So what’s this all mean for suburbia? In some areas of the country, schools have closed from declining enrollments, some child-oriented businesses are closing, and housing needs are shifting.

“Lots of singles, lots of elderly, fewer kids — what this does really is free people in their location decisions to a certain extent if they’re not bound by school and safety aspects,” says Armando Carbonell, chair of the department of planning and urban form at the Lincoln Institute of Land Policy. “It can mean growth in the central city where schools might have been a concern. More households will be able to locate to places without the attributes of the suburbs.”

Source: “Is America’s Love Affair With Kids Waning?” USA Today (June 3, 2011)

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‘Pricing Integrity’ Strategy Gets Homes Sold

A 32-unit project in Chicago called the Renaissance is getting some attention partially for its unique, no-bargain pricing strategy. Developers have dubbed it “pricing integrity.”

The units at the development are priced between $249,900 to $349,900, and the development does not offer any discounts on the price. This differs greatly from many other developers who have currently cut prices or offered up big incentives in trying to lure buyers.

However, at the Renaissance, developers will offer financial assistance with closing costs but they stand firm when it comes to offering no big discounts or incentives.

Hasani Steele, an @Properties real estate professional and development consultant, says they instead focusing on educating the buyer on the property they are purchasing and justifying why they are paying the prices they are.

“It appeals to a certain type of buyer,” Steele says. “I’d sit down with people and I’d say, ‘This is the price.’ What you’re buying is not just an individual condo. What you’re buying here is partially like a partnership with the other people in the building. You’re buying into the ward’s vision.”

He realizes back in the housing boom days “pricing integrity” wouldn’t have worked.

“People didn’t care about the finishes because they thought they’d rent it out or they’d flip it,” Steele told the Chicago Tribune. “We wanted to get people emotionally tied to the product, and they’d love it and they’d buy. People will go into debt for things if they genuinely love it.”

The strategy seems to be paying off: In a sluggish housing market, only three of the 32 units at the Renaissance remain for sale.
Source: “‘Pricing Integrity’ Paying Off for Developers,” Chicago Tribune (June 5, 2011)

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Where to Spend Those Ad Dollars

Real estate professionals, who’ve largely targeted online advertising in recent years, are expected to get much more diverse with their marketing strategies, according to a new report by Borrell Associates, a research firm.

Spending on online advertising quadrupled in the last six years, from $2 billion in 2004 to $8.89 billion in 2010 among real estate professionals, mortgage originators, rental property managers, and real estate developers, Borrell reports. In 2010, real estate agents and brokers spent 64 percent of their ad budgets online.

“The share of ad budgets that the real estate industry is spending on the Internet is obscene and may actually be a bit out of kilter,” CEO Gordon Borrell told Inman News.

Borrell Associates says the amount devoted to online real estate advertising is slowing considerably, and the research firm is already seeing agents target other mediums more.

So where will those ad dollars be going if not spent online?

Print advertising
Newspapers are expected to make a comeback for ad dollars. Borrell researchers say newspapers will likely get back some of the market share lost in recent years to online advertisers, “as agents try to convince sellers they are doing all they can to sell their homes,” writes principal author Kip Cassino in the report. Real estate professionals’ ad spending on newspapers is expected to grow 11.3 percent in 2011 to $20.1 billion and make up 22.2 percent of an agent’s ad budget.

Direct Mail
Snail mail isn’t dead. Borrell is projecting that spending on direct mail to grow 4.3 percent this year to $470 million, which follows a 13 percent surge in 2010.

Broadcast media
Spending on broadcast TV is also expected to grow, jumping 8 percent this year to $250 million. Radio ad spending also is expected to grow by 28 percent to $70 percent, Borrell reports.

Another trend Borrell identified: advertising at the movies. Borrell estimates that advertising at the cinemas is up 65 percent last year and is expected to grow by another 34.6 percent this year to $60 million.

Source: “Real Estate Agents, Brokers Expected to Diversify Ad Budgets,” Inman News (May 20, 2011)

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IRS Raises Gas Mileage Tax Deduction

In a rare midyear move, the Internal Revenue Service is increasing the tax deduction you can take for using personal vehicles for business.

On July 1, if you use your personal vehicle for business, you’ll be able to deduct 55 cents a mile from your taxable income. That marks a 4-cent increase from the beginning of this year.

While the IRS normally updates mileage rates once a year during the fall for the next calendar year, the tax agency decided to raise the gas mileage tax deduction earlier due to high gas prices. (The average gas price currently is $3.61 a gallon, which is up from $2.74 last year, according to AAA.)

“This year’s increased gas prices are having a major impact on individual Americans,” IRS Commissioner Doug Shulman told USA Today. “The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices. We are taking this step so the reimbursement rate will be fair to taxpayers.”

Source: “IRS Increases Gas Mileage Deduction at Midyear,” USA Today (June 23, 2011)

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Banks Fearing Prolonged Mortgage Slowdown

The Mortgage Bankers Association says loan originations plummeted 35 percent to $325 billion in the first quarter and likely will hover around $1 trillion for all of 2011 and stay put next year.

Despite low interest rates, lenders have seen a drop in refinancings that has not been offset by home purchases. In response, some lenders are reducing their staff; while others are closing retail branches, consolidating, cutting costs, or branching into new markets.

Source: “Banks Fearing Prolonged Mortgage Slowdown,” (Login required) American Banker, Kate Berry (June 6, 2011)

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Mortgage Applications Drop, Despite Low Rates

Mortgage applications dropped 4 percent last week compared to a week earlier, despite interest rates hitting new lows for the year.

The refinance index, which tends to make up the biggest bulk of mortgage applications, fell 5.7 percent for the week ending May 27. The purchase index remained mostly flat.

“Interest rates fell last week as incoming economic data was weaker than anticipated,” says Mike Fratantoni, vice president of research and economics for the Mortgage Bankers Association. “Despite this drop in rates, the number of refinance applications fell. In fact, the last time mortgage rates were this low, refinance volume was more than twenty percent higher. It is likely that many borrowers still cannot qualify to refinance given the lack of equity in their homes.”

Source: “Mortgage Applications Drop 4% on Weaker Economic Data,” HousingWire (June 1, 2011)

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Pending Home Sales Drop

Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit. The data reflects contracts but not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said the dip in contracts may be due to temporary factors. “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” he said. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”

Yun notes the growth in retail sales slowed measurably in April, while sales at furniture and home furnishing stores declined sharply. “Nonetheless, the magnitude of the fall in pending home sales is larger than can be implied by broad economic factors, so we need to see if it’s just a one-month aberration.”
Yun said tight credit is the primary long-term factor holding back the market.

“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow,” he said. “Lenders and bank regulators need to be mindful of the historically low default rates among mortgage borrowers of the past two years. A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves.”

“We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings,” Yun added.
The PHSI in the Northeast rose 1.7 percent to 64.5 in April but is 33.4 percent below a year ago. In the Midwest the index fell 10.4 percent to 74.1 and is 30.2 percent below April 2010. Pending home sales in the South dropped 17.2 percent to an index of 91.3 in April and are 27.0 percent below a year ago. In the West the index declined 8.9 percent to 89.1 and is 16.9 percent below April 2010.

“Even with very favorable affordability conditions, job growth and a pent-up demand from abnormally low household formation during the past three years, the recovery will continue to be uneven and sluggish given the ongoing credit constraints,” Yun said.

—NAR

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BofA’s Short Sales Outnumber Its Foreclosures

Bank of America seems to be favoring short sales over foreclosures, at least according to new housing data released this week. The banking giant completed more short sale transactions than foreclosure sales every month for the last year and a half, HousingWire reports. Bank of America completed more than 95,000 short sales in 2010–more than double compared to the year prior.

BofA as well as other banks say the Home Affordable Foreclosure Alternatives program, introduced in April 2010, has helped make it easier to collect documents and reduce the time it takes to close on a short sale transaction. For example, Citigroup says it has dropped its average closing time from 120 days (from when the property was listed to when it closes) to 83 day currently.

“It’s a lot easier to qualify now for HAFA than it was in 2010. All I need is a hardship affidavit and one water bill. We’re trying to make it as easy as possible,” David Sunlin, Bank of America’s real estate management executive, told HousingWire.

Source: “BofA Completes More Short Sales Than REO for Last 18 Months,” HousingWire (June 14, 2011)

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Mortgage Applications Surge Amid Falling Rates

More people are applying for mortgages: Applications for home mortgages had their largest increase in three months due to falling record-low interest rates, the Mortgage Bankers Association reports.

MBA’s seasonally adjusted index of mortgage application activity increased 13 percent for the week ended June 10. That marks the index’s biggest gain since March. The index measures applications for refinancing and purchase demand.

Most of the spike was from refinancing applications, which increased 16.5 percent from last week. However, requests for mortgage applications for home purchases also rose 4.5 percent.

“Mortgage rates have declined for 8 of the past 9 weeks,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement. “Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November.”

Source: “Mortgage Applications See Biggest Gain in 3 Months: MBA,” Reuters News (June 14, 2011)

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