E-Renter News

Zillow, the home value and sales information site, came on the scene when the real estate bubble was still inflated. Countless homeowners enjoyed the novelty of plugging in their address each day to see if their home had increased in value over the day before.

Now, in most markets, Zillow’s home valuations (Zestimates®) don’t look as rosy as they once did. And human nature generally dictates that when your home is valued high, you don’t ask questions. But when your home’s value is underestimated, some homeowners have more reason for concern.

Zillow’s algorithms have been known to cause trouble for prospective home sellers, buyers and real estate investors alike. Since Zillow’s valuations are based on publicly available data, like square footage, the number of bedrooms and bathrooms, and the selling price of other area homes, the best house in the neighborhood could be dinged, while the worst could be overvalued.

ZIllow does not take into consideration variables such as upgrades, improvements, quality of construction or the condition of the house. The company offers many disclaimers, including that their Zestimates are not appraisals. Still, when negotiating on the sale of a home, it can be tough to convince a potential buyer to ignore an online valuation—especially if the asking price is above it.

Here’s an example of how Zillow can get it wrong. A 7,500-plus-square-foot home on five waterfront acres is listed for sale at nearly $6 million. However, the Zilllow valuation is $3.35 million less. Zillow’s algorithm doesn’t know that since the property was last sold for $1.25 million in 2008, the original structure was demolished and a new home was built.

Zillow is the go-to site for many people who are in the first stages of researching homes. And if they see a list price much higher than the Zestimate, they may not look any further. Real estate agents who know a local market find this frustrating; but listing agents may always add comments on a Zestimate page to point out features that warrant a higher listing price.

Whether you're buying or selling investment property, Zillow can be a good place to gather basic information on what's for sale and for rent in any city or neighborhood. But using a Zestimate as anything more than a starting point is, well, pointless.

September’s home price index show a fall of 0.6% from August, breaking a steady run of increases through the spring and summer. For the third quarter of 2011, prices were down 3.9% compared to the same period of 2010.

That’s a slight improvement from the second quarter, when the year-to-year drop was 5.8%. However, as banks return to their efforts in taking back foreclosed properties, the areas with larger concentrations of distressed homes will likely suffer big pricing drops in the coming months.

Atlanta (5.9%), San Francisco and Tampa, Fla. posted the biggest monthly price declines in the nation. And Atlanta, Las Vegas and Phoenix home prices hit their lowest points since the housing bubble burst four years ago.

Economists expect housing to stabilize and prices to increase, but warn that it will take time. “We’re working off the excess of a 15-year real estate binge in this country,” said one.

There were some positive indicators this week, such as in increase in consumer confidence, lower rates of homeowners falling behind on their mortgages, and an 11% increase in building permits last month.

In other housing marketing news, new home sales rose slightly in October, as continued unemployment and uncertainty over the economy caused many potential homebuyers to hold off, despite record-low mortgage rates.

New home sales increased by 1.3% from September to a seasonally adjusted annual rate of 307,000.

According to the National Association of Realtors, existing home sales rose 1.4% in October, to a seasonally adjusted rate of 4.97 million. That’s up from 4.9 million in September, and 13.5% above the 4.38 million-unit rate from October of 2010.

Investors purchased 18% of homes in October, compared to 19% in both September 2011 and October 2010.

Housing starts were down in October, but not by much. Builders broke ground on 628,000 units, which is down .3% from September. On the other hand, building permits rose nearly 11%, mostly because of a 30% surge in apartment permits – the highest level in three years.

Because more people prefer to rent in a shaky economy, multifamily housing is booming. Younger people are experiencing higher rates of unemployment, and are not as motivated to become homeowners as previous generations were. And others are not willing to take the risk on buying a home, when values continue to fall. Despite historically low mortgage rates and low prices, demand for new homes is still down, and homebuilders are competing with foreclosures and short sales.

New homes have a huge impact on the economy. Each one built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders. But when the median price of a new home is about 30% higher than that of a resale home, the new home is a hard sell.

It’s clear that the housing market is dragging the economic recovery. After previous recessions, housing accounted for 15% of economic growth. In this recession, it has accounted for only 4%.

Still, homebuilders are feeling slightly more optimistic, despite a lack of sales of new homes. The NAHB said Wednesday that its survey of industry sentiment rose this month to 20, which is the highest level since May 2010, and an increase from 18 in October. While there is still a long way to go to reach 50, which is the reading where more respondents feel conditions are good, builders are more optimistic about future sales.

In this rental market, landlords hold the strings—and maybe even the leashes. With vacancy rates low and rents growing, many landlords can afford to be a little pickier than usual when it comes to renting their properties.

While the law prevents discrimination against choosing tenants based on family status, race, gender, religion and more, there is no law against prohibiting someone from becoming a tenant because they have a pet—even if they think of the animal as a member of the family. And it could be that more landlords will begin to exercise that right.

When finding tenants is challenging, many landlords ease up on pet restrictions in order to attract more potentially good renters. But now, demand for rentals is high as more people put off buying a home in favor after being squeezed out of the housing market, due to foreclosure, job loss or inability to qualify for a mortgage.

Many of these would-be homeowners have families that include pets, so finding rental property is tougher for them. And even if they do find a pet-friendly rental, what if their dog is over the weight limit, which can be 25 or 50 pounds? And what about people with breeds such as Pit Bulls, Rottweilers, German Shepherds or Doberman Pinschers—often prohibited by even the most pet-friendly landlords?

When you own your home, you may have any type of dog you want—but not when you’re trying to find rent a place to live. As a result, thousands of these dogs could end up at animal shelters.

In this tough economy, millions of Americans are facing the loss of their jobs, which can lead to the loss of their homes, which often leads to making the tough choice between housing and their pet. Landlords who allow pets can ease this worry.

Every landlord must assess his or her own situation, preferences, and vacancy rates to determine whether accepting pets works. But pet owners tend to be loyal and appreciative tenants, who are happy to have a pet to come home to. With the right lease, security deposit arrangement and good communication, allowing pets can be a win-win situation!

A new report by financial analysis firm FISERV predicts that home values will fall another 3.6% by June of 2012. Such a dip would make total decline in value of 35% from the peak in early 2006, and make for the third “rock-bottom” level since the bubble. The first occurred in 2009, when prices fell to 31% below the peak but were relieved by the First Time Homebuyer Credit. The second dip was reached last winter, when prices were down 33% before a mild rally, fueled by a slowdown by major banks on processing foreclosures.

Now lenders are ready to get back to it, which will put more distressed homes on the market and soften prices. A continued high unemployment rate will contribute to the triple dip as well, according to FISERV’s chief economist, David Stiff.

Proof of increased foreclosure activity can be seen in a RealtyTrac report that showed an increase in foreclosure filings last quarter—the first uptick in three quarters. And new default notices were up 14%. So-called “shadow inventory,” or homes that are in foreclosure but have not yet reached the market, are said to number about six million. A flood of those properties could force prices down even further.

Some of the regions that could see the biggest hits include:

• Naples, Florida, where a drop of nearly 19% is expected. Home prices there have already fallen 61% from the peak.
• Las Vegas could see prices fall nearly 16% for a total loss of 66%.
• Riverside, California is projected to fall 14.8% for a total of 61%.
• Miami will decline by 13.2% to 57% total.

Regions where home prices are projected to increase include Madera, Calif. and Carson City, Nev., (each up 15.5%), Yuma Ariz. (9.5%), Yuba City Calif. (9.2%), and Farmington, N.M. (up 8.3%).

Even if the housing market recovers after June 2012, FISERV expects it to gain just 2.4% in the following 12 months.

Landlords, do you expect lower housing prices to help you build your business with opportunities to purchase additional rental properties? Or will lower prices enable more renters to purchase a home, and make it harder to find tenants? Or, will continued unemployment and stiff requirements for mortgages keep people out of the housing market, despite lower prices?

Housing starts for September, fueled by demand for apartment and condominiums for more renters, were up at a rate higher than forecasts predicted. Housing starts climbed 15% to a 658,000 annual rate, which was the most since April 2010. The median forecast in a Bloomberg News survey had called for a pace of 590,000. 75 economists polled by Bloomberg gave estimates of 560,000 to 643,000, so the actual figure must have surprised them all.

Construction starts of multifamily dwellings were up a whopping 51.3% to their highest number since October 2008: an annual rate of 233,000.

On the downside, building permits slipped in September by 5%, to annual rate of 594,000—a five-month low. Foreclosures continue to add to unsold inventories, holding developers back, and further depressing housing values.

Despite the lack of permit activity and any real growth in jobs, U.S. homebuilders were less pessimistic in October, according to the National Association of Home Builders. The sentiment index for October increased to 18, the highest level since may 2010. That’s up 4 from September’s reading of 14. Any reading below 50 indicates more respondents feel conditions were poor, and the index has not seen 50 since April 2006.

The chief economist for the NAHB said some builders were shifting their assessment from “poor” to “fair,” but that few are going from “fair” to “good.” Some areas are actually improving, including New Orleans, rebuilding after Hurricane Katrina, and Pittsburgh. Both of these areas were suffering economic downturns during the housing boom, and are showing signs of rebounding now.

Not too long ago, when the real estate market was booming, many Americans bought condos: for themselves, for their college-age kids, or as a vacation home. Some condo owners planned to sell their units in a few years, make a profit, and move on to the next investment.

If they didn’t sell before the market dropped, most soon found they were unable to do so, even at rock-bottom prices. In many areas of the country, condos, once considered a safe haven for first-time homebuyers or even more seasoned homeowners, are falling in price and interest.

Prospective buyers are not as likely to be able to buy a condo as a first home, live in it a few years, and trade up to a single-family home. They now risk either not being able to sell or being forced to sell at a loss.

Instead, across the country, many first-time buyers are skipping the condo purchase and renting until they are ready to buy a single-family home. Not only do they face difficulties in securing mortgages, due in part to new Federal Housing Administration regulations that require half a building’s units to be owner-occupied, but younger buyers have had trouble saving for down payments in this economy and shaky job market.

Of course, it all depends on the area. In some locations, condos are still selling well. In-city luxury condos appeal to down-sizing suburbanites, and college towns are still popular with parents who are looking for alternatives to university housing.

In the U.S., apartment vacancies fell to a five year low in the third quarter of 2011. The vacancy rate was 5.6% according to Reis, Inc., a property research company. The vacancy rate is far lower than the 7.1% recorded in the same period in 2010. The second-quarter vacancy rate was 5.9%. While the numbers appear to be on a downward trend, some economists don’t think it will continue.

Why the drop in apartment vacancies? Here are several reasons:

1. Summer is typically a busy time for signing leases and moving, as parents try to get their children settled before school begins and others take advantage of nicer weather—everyone wants to move before the snow flies.
2. Continued job woes and tight credit are keeping more people from buying homes—so renting is the only option.
3. More young people seem to be moving out on their own, causing a higher demand for apartments.
4. New apartment units are few and far between. About 8,200 units came onto the market in the third quarter 2011, the second-lowest quarterly number in 12 years, according to Reis.

Why The Apartment Vacancy Rate Might Not Stay So Low
The unemployment rate doesn’t appear to be improving at all, causing more concern for more economic woes across the board. Word of another recession could be enough to keep young people at home longer, and families who are doubled up in housing staying put until things improve.

If the economy continues to backslide, landlords should be ready to do what it takes to keep good tenants. But for the foreseeable future, the home mortgage situation should continue to make renting a popular alternative for more people.

The housing market’s woes have had a dramatic effect on U.S. homeownership in the past decade, according the Census Bureau. The agency yesterday released an analysis that said the rate of homeownership dropped in 2010 to 65.1% from 66.2% in 2000. The drop is the largest since 1940, when homeownership fell more than 4% to 43.6% in 10 years.

Many economists say that the rate will continue to fall, and won’t return to its mid-2000s high, when about 70% of American homes were owner-occupied. Has the American Dream of homeownership for all vanished? Many people became renters due to job loss, and attempts to sell homes that just don't sell in this market. Foreclosures and bankruptcy is the next step for countless Americans—which typically means no homeownership for years.

Even with mortgage rates at their lowest ever, those who want to get back into buying a house can’t qualify for a mortgage. Living month-to-month and renting is just the way it is for millions of Americans—and until employers begin hiring again, and home prices begin to rise to justify the investing in one—it’s the way it will continue to be.

"Renting just makes sense to us. It's more affordable and we don't have to worry about getting into something we can't get out of," said one Pennsylvania couple.

Homeownership rates above 70% were still reported in Minnesota, West Virginia, and Michigan. The counties with the highest rates were Keweenaw County, Mich. (89.8%) and Sumter county, Fla. (89.7%).

On the opposite side of the spectrum, renters make up 69% of households New York City, 61.8% in Los Angeles, and 55.1% in Chicago.

The number of people renting is expected to grow across the board, in cities and in rural areas, especially among 35- to 44-year olds, whose homeownership rate fell nearly four percent, from 66.2% to 62.3%.

As the housing market continues to stubbornly avoid recovery, Peter Orszag, the former director of the Office of Management and Budget for the Obama administration, says it’s a good idea for the government to offer investors incentives to buy foreclosed, excess and vacant homes and rent them out. Economists and real estate experts came up with the idea to provide an immediate tax write-off, and Orszag, who is now at Citigroup, thinks it should be implemented.

While rental property investors may now depreciate the value of properties over 27.5 years, other investments can be fully depreciated immediately. The new idea is that as long as a real estate investors hold on to newly purchased properties for a number of years and rent them out, they should get the same allowance.

Proponents say this should be a short-term incentive, and should end once the supply of vacant homes returns to a normal level. They also say that the incentive won’t cure the housing market, but can’t hurt and is wroth trying. Rules would be enforced, such as a house would need to be vacant for six months to be eligible, and that the benefit would be lost if homes were resold, rather than rented.

Is this a good idea?

Landlords, who are enjoying low vacancies right now, might not think so, considering it would add millions of rental units to available housing. Rents would decrease, vacancy rates would increase, and all those investors could be stuck with empty homes anyway. Where is the incentive in that? How many current landlords would sell in anticipation of declining rents? And what about a break for current landlords?

Some say that better idea is to offer a 12-year depreciation schedule—there is no need for one-year write-offs—and that upgrade or rehab monies should qualify for immediate deductions, rather than capitalization.

Still others say the market needs to correct itself, without any further government “help.”

What are your thoughts? Is renting the way out of the housing market mess?