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Tuesday, January 24, 2012

Housing Initiatives Tonight

by Calculated Risk on 1/24/2012 06:56:00 PM

The State of the Union Address is at 9 PM tonight.

President Obama will probably mention some housing policy initiatives that do not require Congressional approval: 1) the updated HARP program (refinance activity will increase in March), 2) an REO to rental program for Fannie and Freddie, and 3) the mortgage settlement agreement.

On the possible REO to rental program, here is a story from Patrick Coolican at the Las Vegas Sun: Your next landlord in Las Vegas could be a hedge fund

Hedge funds could be the next big player in the Las Vegas real estate market. ...

“We’ve been contacted by a number of different groups who have never considered owning single-family residences as rental properties in their investment portfolios,” says Brian Krueger, vice president for strategic services at Coldwell Banker, the real estate firm.

They are organizing money and have started to come in and do due diligence,” he says.

Doug Brien, managing director and co-founder of Waypoint Homes, tells me he was in Las Vegas last week to survey the landscape. Waypoint, an Oakland, Calif.-based company, has bought 1,000 homes as rental properties in other markets.
However in many areas selling REO in bulk doesn't seem to make much sense - since there are so many small investors already buying. Here is an excerpt of a piece from economist Tom Lawler:
Contrary to what some espousers of “bulk” REO sales to large investors to rent our SF properties might suggest, the number and % of single-family detached homes occupied by renters increased significantly during the latter half of last decade, with the largest gains coming in “bubbly” areas. The table below is based on data from the American Community Survey. The 2000 data are from Census 2000, while the 2006-07 and 2008-09 averages are derived from the 5-year, 3-year, and 1-year ACS results for the 2006-10, 2008-10, and 2010 periods released this year.
Percent of Occupied SF Detached Homes Occupied by Renters
Maricopa County10.4%13.5%16.8%19.8%
Clark County12.5%18.2%22.0%24.4%
Sacramento County18.8%16.7%20.2%22.4%
Lee County10.6%12.3%14.6%17.3%
Source: Decennial Census 2000, American Community Survey 5-, 3-, and 1-year Estimates
According to ACS estimates – which sadly are just estimates – for the US as a whole the % of occupied SF detached homes that were occupied by renters increased from an average of 12.8% in the 2006-07 period to 15.1% in 2010. That % increase translated into a 3,637,349 jump in the number of renters occupied SF detached homes. By comparison, the number of owners occupied SF detached homes declined by 1,333,747.

For “distressed” areas, the numbers were even more striking, as the above table suggests.

In Maricopa County (home of Phoenix), the estimated number of SF detached homes occupied by renters increased to about 182,251 on average in 2010 from about 123,553 on average during the two-year 2006-07 period.

Of course, SF homes lost to foreclosure rose sharply in Maricopa County in 2008, and remained at elevated levels through last year – though foreclosures in 2011 were down from 2010. Investor buying also appeared to pick up dramatically in 2008, as (NOT coincidentally) the all-cash share of home sales in the county.

The ACS data, combined with investor/all-cash shares, suggests by 2010 a SIGNIFICANT share of SF homes lost to foreclosure in 2008-2010 period (1) were purchased by “investors;” and (2) had by 2010 been successfully rented out.
It is not clear why folks focusing on the rental market for SF housing have not actually looked at any data, much less analyzed or commented on the truly astounding increase in the rental share of the SF housing market in many parts of the country. The astounding increase in the number of foreclosed SF detached homes in Maricopa County occurred, of course, without any mandated program to have bulk sales of REO at discounts to “large” investors.
CR note: Foreclosures will probably pick up significantly once (and if) a mortgage settlement is reached. But right now it doesn't appear a bulk REO program is needed in most areas. Hopefully, if a program is announced, it will be limited to areas where small investors will be overwhelmed by the volumes (perhaps Las Vegas and parts of Florida).