The State of US Housing, According to Kathy Fettke

We’ve got good economic news coming out of the U.S. finally! Job creation is expected to be the highest on record since 1999, and the overall economy grew mid-year at its fastest pace in more than 10 years

This is great news for the U.S. housing market, which is dependent on job growth. But don’t expect real estate sales and home prices to boom in 2015.

While more people are obtaining employment, salaries have not increased as rapidly as home prices in many U.S. cities (Seattle, Portland, NY and most of CA). If this continues, more and more people will be priced out of the housing market, especially if interest rates rise.
However, in, highly affordable markets where jobs are abundant and salaries are increasing faster than home prices, expect home prices to continue to increase in 2015. (Texas, Indiana, North Dakota and Pennsylvania). In these markets, higher interest rates will have little impact.

Young adults are still facing high unemployment, forcing many to continue living with friends or relatives. As a result, new household formation is only around 500,000 this year, about half what it would be in a robust market. These new households are expected to be renters until they have a 2 year job history and have saved enough money saved to buy a home. Most have to pay down their massive student loan debt first, and that could take years.

Demand for rental property will likely be high for the remainder of this decade, so expect rents to continue to climb during that time – especially in areas where the job growth is attracting entry-level employees. This is exactly where buy & hold real estate investors should be focused.

So who will be buying homes?

Certainly smart real estate investors are buying properties to serve the strong rental demand.

And if job growth continues to accelerate in 2015 as expected, wages are expected to increase as well. This could attract more first-time home buyers into the housing market, which will allow more move-up buying activity.

Additionally, it could become easier to qualify for mortgages next year. Fannie Mae and Freddie Mac are now allowing down payments as low as 3% of the home price.

Banks are also expected to loosen up their overly strict lending standards due to Fannie and Freddie’s recent clarification on loan buy backs. Banks have suffered billions of dollars in penalties for issuing poorly documented loans and have been forced to buy many of them back. They were reluctant to lend for fear of more penalties and buybacks. The new rules state that buy backs will only be enforced if the original underwriting does not meet “Ability to Repay” requirements or if there is evidence of fraud.

Existing home sales were fairly flat in 2014, which could be blamed on a slow start to sales early this year due to freezing cold temperatures across the country. Plus, foreclosures and short sales accounted for just 9% of available inventory, down from 14% last year. Less distressed inventory means there were fewer “bargains” on the market, driving the median home price up.

Many people mistake these price gains as “appreciation” but in reality, it was a “bounce back” to normal after an over-correction. Now as price gains are slowing, many people ask me if we’re headed for another housing recession.

It’s highly unlikely that we’ll see major price declines. Sales and home prices will stabilize but they won’t crash like in 2008. The housing crisis at that time was based on a mortgage meltdown from loose credit. Remember, ANYONE could get a loan back then, whether they qualified or not. That has not been the case over the past 6 years! In fact, borrowers were heavily scrutinized and had to more than prove their ability to repay the loan.

Wall Street pays close attention to housing starts (how many new homes are being built) and new homes sales. Construction was definitely affected by the abnormally cold weather in early 2014, but we still made it over the 1 million mark, which is 3 times what was being built during the Great Recession.

Housing starts are up nearly 8% from last year, and that number is expected to increase to as much as 16% in 2015. All this new home construction could boost the GDP growth next year, creating even more jobs and a stronger economic recovery.

In summary:

The outlook is good for 2015! Higher employment combined with loosening lending standards will bring more real buyers into the real estate market. Additionally, there will be a healthy rental market for real estate investors.

This content was originally from an interview Kathy Fettke did on CNBC. She is the creator of Real Wealth Network. You can find her original post, along with a video of the interview, by clicking here.

How Much Is Your Rent?

We're keeping it short and sweet this week. Here's a chart detailing the average rental prices for 2 bedroom apartments in various US metropolitan areas. Chattanooga isn't listed on here, but you can get an idea of what rent is like here by checking out other regional cities. We don't own this data, it originally came from the US Department of Housing and Urban Development.

Harvard Study Finds Bright Outlook for Rental Investors

Ever thought about investing in rental property? Well, since you're reading a blog about investing, I'm sure you probably have! The good news is, it looks like it might be getting a bit less risky to do so! A new study seems to suggest that rent rates are rising a bit, while construction continues at a steady pace! Here's the article quoted below:

The rental market looks very positive for investors right now, but there are signs that tenants are falling behind.  

The rental vacancy rate was 8.3 percent in 2013—the lowest it’s been since 2000, according to “The State of the Nation’s Housing” report by the Joint Center for Housing Studies of Harvard University. 

Naturally, rents rose—by 2.8 percent overall, or 3 percent at professionally managed properties with five or more units. It’s probably not too surprising that multifamily loans are up, too, by 13 percent last year. (That increase is actually lower than 2012, when the number of new multifamily loans increased by 36 percent.) 

And while new multifamily construction is on the rise, so are rentals of single-family homes. Between 2006 and 2012, the number of single-family rentals increased by 3.2 million. Only about half as many new apartment units were built in that time. 

Meanwhile, real median renter costs were up 4 percent between 2011 and 2012, even as median renter incomes declined by 13 percent. Almost half of renters are spending more than 30 percent of their income on housing; about 25 percent are using in excess of 50 percent of their income on a place to live. 

The effect is more pronounced for low-income families. About two-thirds of people earning $15,000 annually—about what you’d make on a full-time, minimum-wage income—spent more than 50 percent.

Click hereto read the full report from the Joint Center for Housing Studies.

This article was originally published on Community Investor, while the report cited was originally published by the Joint Center for Housing Studies of Harvard University. The Grace Frank Group in no way claims ownership of this knowledge or involvement with these parties.

Rent Is Rising Fast in Chattanooga

A sobering reminder that explosive economic growth of the kind Chattanooga has been experiencing has its stumbling blocks. This article from the Chattanooga Times Free Press lays out the rental and leasing situation in the Chattanooga housing market.

Pictured: Not Chattanooga

Put simply, the rise in population, coupled with the increase in construction, has steadily driven prices up. While this isn't necessarily a bad thing, it does tend to make things harder for lower-income and long-term residents who are not used to the higher cost of living.

Want to Start Your Own Business? Consider Chattanooga.

Nooga.com, a local web news site here in Chattanooga, recently posted an article

referencing another article. Track with me here. The original article came from a website called Wallet Hub, which is, in Nooga.com's words, a "personal finance social network."


No idea what that means, but it did rank Chattanooga #21 out of #150 on a list of the best US cities to start a business.

#21! While that may not seem like a fantastic spot, keep in mind that that puts Chattanooga ahead of places like Texas, New York, Atlanta, and most of Florida. This means that not only is Chattanooga a good place to start your business, but that it is also a good place to invest. With a growing population and plenty of opportunities for entrepreneurship, investing

Click here to see the full article from Wallet Hub, complete with maps and more in-depth analysis of the process of compiling the list.

A Nifty Map for your Consideration

Maps are useful. They are a great way to synthesize knowledge and information, and present it in such a way that is both accessible to millions and easily understood. And with the increasing number of people getting most of their information from the internet, maps and infographics have become even more commonplace.

The Americas hadn't been invented yet.

Fascinating. More to the point, here's a map presenting a state by state breakdown of incentives for renewable energy. While not the most exhaustive source, it is interesting nonetheless and well worth a look. It's an interactive map, so you'll have to click on the state you want to know more about.

Why Real Estate Investment Is Better Than Stocks

Oldies, but the goodies.

Most people would probably agree that when it comes to longer term investments, the stock market will, 9/10, be more profitable than real estate. And probably less work to maintain and sell.

But is it? Or is the value of real estate investment simply understated or misunderstood? Mark Ferguson, real estate broker and blogger at BiggerPockets.com, disagrees.

Click here to read his list of 9 reasons why Real Estate is a worthwhile investment, and even better (he claims) than investing in the stock market.