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USA commercial property and its appeal to large and small investors

The USA commercial property sector performed well in 2016, but it is still under the radar for most Asia based investors who are missing out on some exceptional opportunities.  This is due to a variety of reasons including lack of awareness by investors and concerns over entering a large and diverse market for the first time.   However, with the right adviser large and small investors can enjoy the benefits of a secure and attractive income stream and sound capital growth.

The consensus of opinion amongst analysts and commentators is that the USA commercial sector will continue to perform well over the next five years.  It has certainly done this over the past thirty five years, having shown average annual returns of 8.8%.  With appropriate gearing this would have resulted in returns of 10% plus  p.a. and there are few grounds for believing this will not continue over the medium term.  As one leading asset manager put it:

USA commercial real estate fundamentals have rarely been stronger. While economic growth has been moderate, the supply of new buildings has been muted, resulting in higher occupancies and rents.  In the third quarter of 2015, occupancies among institutionally held properties reached their highest level in fourteen years. The Outlook remains upbeat.  Construction has steadily increased over the past five years, but in most sectors and markets in remains below both historic levels and growth in demand.

We are focusing our USA operations on the Chicago market and are carrying out due diligence on several opportunities that offer a real 7.5% p.a. after USA tax.   With investment levels starting from US$100,000 and rising to US$20m plus, we believe these will be sound investments for our clients.

Walton

Walton – Pre-­development Land Investment

The Walton Group of Companies (Walton) is a multinational real estate investment and development group headquartered in Calgary, Alberta, Canada. Walton’s expertise encompasses the research, acquisition, planning, administration management and development of strategically located land in major North American growth corridors.

For over 30 years, Walton has formed land­‐based real estate investments for individual and institutional investors worldwide. Walton has syndicated land in Alberta, Ontario, Arizona, Texas, Georgia, Washington D.C., the Carolinas, Southern California, Central Florida and Nashville, laying the foundation for communities where people can live, work and play and generate wealth for clients around the globe.

Walton’s Experience

  • Over 89,000* clients worldwide
  • Over $4.2 billion CAD* in assets under administration or management
  • More than 85,000 acres* of land under administration or management
  • Over $1.7 billion CAD** distributed to clients

For more information and full details about the track record and latest pre‐development land investment opportunity, please contact us below.


*Approximate as of March 31, 2014
** Amount returned is in unaudited Canadian dollars and consists of Exit proceeds on sales of pre-­‐development land, distributions, interest and Principal repayment on development projects, and interest and principal repayment on corporate bonds.

This is for general information purposes only and is not an offer to sell or a solicitation of an offer to buy any Walton land investment. Any sales of a Walton land investment will only be conducted using sales documentation prepared in accordance with applicable laws. You should review such offering documentation and consult your professional advisors before making any decision to invest. The above does not discuss the risks associated with real estate investment.


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“Buy land, they are not making it anymore”

It is hard disagree with the above quote. Ownership of strategically located land has always been, and always will be, a sound investment. It has stood the test of time and will continue to preserve and generate wealth for generations to come. So why don’t more investors take advantage of the current opportunities in the USA land sector? It is certainly a great time to invest there and there are some sound opportunities available.

Most investors in places like Hong Kong, Singapore and Malaysia focus on the UK market and have little knowledge of the USA. London apartments have long been an investment favourite for investors in these countries. The London market has performed extremely well over many years and is a superb place to invest. However, many investors cannot access the market there as prices have soared in recent years. Land in the USA is a much more affordable investment with investment levels starting from US$10,000. Some people will be concerned that this will only buy something in the middle of a swamp or so far from civilisation that-one will want to live there in our life times. However, this is not the case, it is merely a reflection of the current state of the USA market.

Residential land in established communities in Florida can now be bought from under US$15,000. Prior to the GFC in 2008, many of the plots were selling at close to US$100,000. There has certainly been a lot of pain in this market for investors over the last five years. The fact remains though, that Florida is one of the growth states in the USA and the population is set to steadily increase over the medium to long term. Builders are gradually coming back into the market and housing starts are showing signs of improvement. Permits for future U.S. home construction rose to their highest level in 5 years in October, suggesting the housing market recovery remained intact. Single-family homes are by far the largest segment of the market. The Commerce Department advised that building permits jumped 6.2 percent to a seasonally adjusted annual rate of 1.03 million units. That was the highest rate since June 2008.

The demand for land is not going to surge over night and prices will not double in 2014. Nevertheless, the signs are there that the worst is over and Americans have started building homes again. They will need land with approvals in place for this. When you can buy a building plot for under US$15,000, the downside is negligible. It really is worth a punt on the recovery of the USA single family home market – the returns may be excellent over the next five years.

As an alternative to buying land already zoned residential, investors can buy pre-developed land through Walton. Some investors will worry that the company will fail to secure planning approval, but it has never failed to do so and with 56 exited projects it has a sound track-record. Rather than simply wait for the land to increase in value, Walton adds value to it by securing all the necessary approvals to allow a developer/builder to start construction. Investors do not have the flexibility of being able to sell when they want to, as they do with individual ownership of a building plot, but for investors who want a ‘hands off’ profitable 4-6 year investment, it is ideal.

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Growth returns to the USA market

In February of last year we released two Property Bulletins and it is worth reviewing them in the light of what is happening in the USA market.

Property Bulletin – 4/2012
US market regains its lustre

Florida: The state where the US housing slump started now shows the best potential, analysts say
Jobs are coming back and home prices are stabilising. America looks like a land of opportunity

Property Bulletin – 5/2012
Warren Buffet : I’d buy up a couple hundred thousand single family homes if I could

The point we stressed was that when people like Warren Buffet are saying now is the time to invest it is time to sit up and take notice. All markets recover in time and some recover quicker than others. The USA is a prime example of this. Not everyone agreed that it was time to enter the market though, and one person even questioned our sanity (humorously, we think).

Well, Mr Buffet was right and last year would have been a great time to enter the USA property market. It has certainly started recovering and prices have risen by 10% over the past year. The graph below from Case – Shiller shows the performance over the past 25 years. All 20 cities have just shown increases on an annual basis for at least three consecutive months. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Seattle and Tampa all posted double-digit annual returns.

The good news keeps coming – a recent report from CoreLogic showed there were 9.7 million properties underwater (whose owners owed more on the mortgage than the homes were worth) during the last quarter. This was down from 10.5 million in the previous three months. That amounts to 19.8 percent of all properties with a mortgage, down from 21.7 percent. In the past year, 1.7 million borrowers have regained positive equity. “We are still far below peak home price levels,” CoreLogic Chief Executive Officer Anand Nallathambi said in a statement, “but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap.”

As you would expect in a market the size of the USA, the recovery is quite fragmented. Nevada had the highest percentage of properties in negative equity at 45.4 percent. Rounding out the top five were Florida, Michigan, Arizona and Georgia. These five states combined accounted for 32.8 percent of negative equity in the United States. These are the markets astute investors should target.

So why didn’t more overseas investors enter the USA market last year? Lack of familiarity with the market there is the reason most often cited. Investors in Hong Kong, Singapore and Malaysia are much more familiar with the London market and many are reluctant to go outside their comfort zone. The important thing to remember is that if you have the right adviser, investing in the USA can be a trouble-free and profitable exercise. A lack of knowledge and familiarity should not deter you. The right adviser will handle all aspects of the purchase process, ongoing letting and management and eventual resale of the property. The USA is a sophisticated market and the level of professionalism and service in the property sector is second to none. In addition to this, we have had over 20 years experience in serving the needs of international property investors.

Whether it is a freehold house, condo or development land, the USA is the place to invest at the moment. When you can buy land through a company with a hugely successful track record from as low as US$10,000 or a Tampa freehold house in a marina development close to shops etc for under US$250,000 there is no downside.

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The USA house market going from strength to strength

We have been saying it for some time now – the USA market is certainly recovering.

U.S. home prices rose in March, marking the biggest annual increase in seven years, in the latest sign of strength for the recovering housing market. CoreLogic’s home price index jumped 1.9 percent from the previous month and accelerated by 10.5 percent compared to March last year. That was the biggest year-over-year increase since March 2006.

Home prices have been rising since last year, helped by investor demand and tighter inventory. The recovery is also evidenced in the number of homes being constructed. Groundbreaking to build new U.S. homes rose in March to the highest level since 2008. The Commerce Department said on Tuesday that starts at building sites for homes rose 7.0 percent last month to a 1,036,000-unit annual rate. That was higher than analysts’ expectations of a 930,000-unit rate.

A recovery in housing, driven by growing demand and record-low mortgage rates, is boosting other sectors of the economy Home building added to national economic growth last year for the first time since 2005 and is expected to provide support this year.

Even the Fed agrees – “A sustained recovery in the housing market appears to be under way,” Elizabeth Duke, a board member at the Fed, said in a speech last week.

Warren Buffett said ‘I’d buy up a couple hundred thousand single family homes if I could.’ (see page 3 of our News Archive) It is hard to disagree with the greatest investor of our time.

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San Francisco Bay Area – a great property investment market for 2013

The Bay Area housing market continued to improve as property investment location in 2012. The area enjoyed strong sales and rising sale prices fueled by increased demand, strained inventory, record-low mortgage rates and robust investor interest. The market’s performance in November reflects the improved performance. A total of 7,296 new and resale homes were sold in the nine-county Bay Area in this month and was the highest for any November since 8,042 homes were sold in 2006.

‘With the mismatch between supply and demand, there’s upward pressure on prices,’ said John Walsh, president of real estate information company DataQuick
The median price paid for a home in the Bay Area was $438,000 in November 2012. That was up 5.3% from $416,000 in October and up 20.5% from $363,500 in November 2011. The November 2012 median price was the highest since August 2008, when it was $447,000. Inventory is declining, and in particular the amount of distressed property, which undermines property prices, is falling. In November distressed property sales – the combination of foreclosure resales and “short sales” – made up 35.0 % of the resale market. That was down from 35.2% in October and down from 50.1% in November 2011.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 11.5% of resales in November 2012, down from 11.7 % in October, and down from 25.2% in November 2011. The level of foreclosure sales in November 2012 was the lowest since 10.1% in November 2007 ie before the property crash and well below the peak level of 52.0% in February 2009. The long term average for foreclosure resales over the past 17 years is about 10% and so the level is now almost back to this ‘normal’ proportion.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 23.0 % of Bay Area resales in November 2012. That was down from an estimated 23.5% percent in October 2012 and down from 24.9 % a year earlier. Investment buyers, many from overseas, continue to be active in the Bay Area market and in November purchased 24.4% of all Bay Area homes, up from 23.7 % in October, and up from 21.7% a year ago. For investors looking for good rental returns and capital growth the San Francisco Bay area may be the ideal property investment location.

Property investment – income or capital growth?

We are often asked by investors whether they should focus on rental income or capital growth when considering a property investment. The answer is very simple – it depends on whether you are confident that the capital growth product will perform at the level you expect it to.

Some investors believe that while they are working and earning an income the emphasis should be on capital growth. They have no real need for an additional income and the aim should be to maximise their return over the period they hold the property. If the market performs well and prices rise substantially the return on their investment in geared/mortgage investment should be higher than the typical rental income they would have enjoyed. As he or she moves towards retirement the emphasis should then change towards income producing assets which would replace the previously earned salary. There is nothing wrong with this strategy, although in practice few people adopt it when it comes to property. Investors become familiar with a sector such as residential where the emphasis has been on capital growth and do not have the confidence or knowledge to diversify into income producing sectors such as commercial or industrial. The danger with this strategy of course, is that all markets suffer corrections from time to time. If you are forced to sell when prices have dropped you may lose all the gains made to that point.

Someone once remarked ‘You never go broke making a profit, no matter how small that profit is’. It sounds simplistic, but when it comes to property there is a lot to be said for it. Lots of astute investors believe that a high net rental income is far more important than the unknown variable called capital growth. They are satisfied with a real net return, after all costs and taxes, of 5% – 8% p.a., and believe that any capital gain through an appreciation in the value of the property is an additional bonus. It is hard to argue with this point of view, especially given that even relatively low capital and rental growth should match inflation over the medium term so the real value of the income enjoyed does not fall. The rental income investors adopting this approach enjoy is certainly better than current bank interest rates and it is accessible now rather than sometime in the future when the property is sold.

Before we are deluged with emails telling us that we should not forsake capital growth, let us clarify what we are saying. We are firm believers in capital growth opportunities. However, there are times and circumstances where, within a diversified property portfolio, the income oriented properties should dominate. Retirement is the obvious one we mentioned above, another is when there is considerable uncertainty over the prospects for capital growth within a preferred market. In any event, both opportunities should be included in most portfolios with the only real issue being in what proportion

As our clients will know, we recommend the residential sector in central London and New York and Walton pre-development land in the USA as safe and financially rewarding capital growth opportunities. They offer exposure to different countries, currencies and sectors and the historical returns have been attractive. Condos and single family homes in the USA offer a mixture of high income (5% -7% net) plus capital growth over the medium term. Some will see them as more capital growth plays, but the income is attractive enough for them to qualify as a hybrid opportunity. Student accommodation and storage units are examples of opportunities where the emphasis is on income (7% – 8% net) with some capital growth.

Determining the correct strategy for an investor is best achieved by first discussing his or her needs and objectives. Once these have been identified it is then a question of selecting the opportunities that meet these. Some investors will want primarily capital growth, some will want income. At least with the right advice and opportunities, investors can make an informed decision and make the right property investment.

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USA single family homes – major funds continue to enter this property investment sector

Many property investors are concerned over whether the single family home sector in the USA is one they should invest in. Well, in addition to Warren Buffett extolling its virtues (see our web site news archive), investors can take heart from the news that Blackstone Group has apparently become the biggest U.S. investor in single-family rental homes by spending more than $1 billion since the start of 2012 to acquire more than 6,500 foreclosed houses in eight metropolitan areas.

News reports indicate that numerous private-equity firms have crowded into the business, some as early as last year, looking for a way to bet on the recovery of the housing market. Blackstone’s growing commitment to this strategy offers fresh evidence that the purchases of foreclosed homes, which began as a mom-and-pop pursuit, is gaining legitimacy among the biggest private-equity firms. The demand from these firms and other investors could help strengthen the housing recovery, analysts say. Earlier this year, the Federal Reserve expressed support for the strategy as a way to clear the backlog of foreclosures that has weighed down the market.

People involved in the market estimate that private-equity firms and other investors have raised $6 billion to $8 billion to invest in the sector, as they try to take advantage of prices that have fallen nationwide on average by more than a third. That could buy 40,000 to 80,000 properties, according to a recent report from Keefe Bruyette & Woods.

Blackstone and other firms are expanding rapidly partly because the housing market is firming up. In some markets, home prices have risen to the point that firms might not be able to achieve their initial return objectives from renting them out.

“I believe the smart thing to do is to ramp up really quickly, because I think the dynamics are going to change dramatically in the next 12 months,” said John Burns, an Irvine, Calif.-based housing consultant. “We’re going to see a lot of price appreciation at the low end of the market, which means lower cash yields.”

Blackstone has previously said it expects to achieve initial yields of 6% to 7% on the rental income. But the firm also will need rents and home values to rise if it is going to hit the double-digit returns that it typically promises its investors.

Private-equity firms also are looking to boost their property investment returns by putting leverage on their portfolios. Blackstone is close to finalizing a loan from Deutsche Bank for $300 million, an amount that could expand to as much as $600 million, reports indicate. The loan is the largest made to a private-equity fund for this strategy so far, executives at several firms say.

A $25 million fund raised by Delavaco Properties Inc., a Fort Lauderdale, Florida-based owner of about 450 single-family properties, was “more than two times over-subscribed” with investors drawn to the 7.5 percent interest on the debt plus options to buy shares of the company. Another party, The Alaska Fund, expects unlevered returns on its investment of 6 percent to 7 percent a year.

The expected yield from this sector, while better than Treasury bonds, is an indication that the single-family rental market’s risk is lower — and so are potential rewards — than the usual draw for opportunistic investors, said Steve Duffy, managing director of real estate investment banking at accounting firm Moss Adams Capital LLC.“It’s logical that early capital had the view to get a higher return from their investments,” Duffy said. “That’s no longer the case. The risk is down because the economy is recovering and there’s stabilization in housing.”

The flow of discounted foreclosures has certainly slowed since late 2010, when some of the largest mortgage servicers, including Bank of America, imposed a temporary moratorium on home seizures amid allegations they used faulty or forged paperwork to seize properties from delinquent borrowers. Even after a $25 billion settlement in February between the five largest loan servicers and attorneys general from 49 states, foreclosure processing hasn’t recovered. Banks repossessed 185,451 homes in the first quarter, a 14 percent decline from a year earlier, RealtyTrac data show. The number of REOs bought by third parties in the first quarter was 123,778, down 15 percent from a year earlier, according to the Irvine, California based company.

With its low risk appeal, the USA single family home property investment sector has all the ingredients to appeal to property investors.

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Manhattan confirms its appeal as a property investment market

The supply of new apartments for sale in Manhattan supports the fact it is a sound property investment market. Supply fell significantly last month, slipping 17.2% to 1,185 from August of last year. The result reinforces the belief that a lack of inventory will force prices higher across all segments of the market.

“New development inventory has continued to decline, year over year’ said Sofia Song Vice President of Streeteasy.com who commented on the market there. She added that declines have now occurred for twelve consecutive months.

The median price in Manhattan has certainly shown improvement rising 11.1% to US$1.45m. ‘With tight inventory, sponsors have been standing firm on prices’ said Ms Song. This is supported by the fact there were only 128 price cuts on listings in August, 28% fewer than a year ago.

Buyers do not seem deterred by the firmer prices with signed contracts up 26.3%. ‘With inventory being tight everywhere and as pent up demand grows, the new development projects currently in the pipe line are becoming more and more highly anticipated’ she said.

Whilst the above comments refer to new developments, it echoes what is happening in the larger established homes market. Manhattan did not experience the crash markets such as Orlando experienced and has maintained its status as a ‘safe haven’ location. With strong rental demand and prices forcasted to rise it should also be considered as a sound property investment location which will show good returns over the medium term.

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The Laurel

The Laurel at 400 East 67 offers the very best of upper east side condominiums.  Location, views, amenities and everything that Manhattan has to offer on your doorstep. For an update on the rental market in Manhattan please visit http://bloom.bg/JxnRwO and for full details including financial information and available units in 75 Wall Street please contact us.
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Napa Valley – property investment on an upward trend

The residential sector in Napa Valley is opening up great property investment opportunities. A Californian real estate service, DataQuick, has estimated that in June prices in the greater San Francisco Bay Area were up by 10.4 % over the past twelve months. The good news for property investors entering the market now (but unfortunately not people who bought at the peak) is that the median house of $417,000 is still a long way short of the peak of $665,00 in 2007.

Reassuringly for investors, distressed sales fell across the market with the percentage falling from 44.3% a year earlier to 36.1%. The overhang of foreclosed properties is disappearing, which is good news going forward. Investors are certainly seeing the opportunity and accounted for 23.4% of sales compared to 20% last June.

Interest is particularly keen in Napa Valley, the USA’s premier wine region. It had the second highest change for homes sold in June in the Bay Area. There are planning constraints in place which help prevent over development and help make it a sound investment location. We were there looking at the market in June and it certainly has a lot going for it. The key is to find the right product in the right location at the right price. When we find it, our clients can enjoy the rewards from a sound property investment in one of the USA’s premier locations – Napa Valley.

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It is official – the US housing market has turned at last.

At least, according to the Wall Street Journal it has and that is great news as far as property investment is concerned. An article that was published in the WSJ on the 12th July opened with ‘The housing market has turned at last. The US finally has moved beyond attention-grabbing predictions from housing ‘experts’ that housing is bottoming The numbers are now convincing.’

There are several articles available which confirm that most analysts believe the worst is over. Of course, they could be wrong and things could get even worse from here. However, that is highly unlikely. After the worst property recession in living memory there are positive signs that the market is recovering. The inventory of established homes for sale has fallen, despite the number of foreclosures, and the number of vacant homes is also down.

We have previously advised our clients that a number of analysts or ‘experts’ were of the opinion that the US market was bouncing along the bottom. We have also said that picking the bottom of any market is notoriously difficult. If investors buy within 10% of the bottom they will have done extremely well. We are now in that position so by buying now and exercising a little patience there should be some sound property investment returns going forward.

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Major players enter the USA single family home market

The following article in its extended version was published by Bloomberg on the 3rd July. It highlights the fact that major institutional investors are now entering the single family home market. For more information on how to access this market please contact us.

Blackstone Group LP, the biggest buyer of U.S. commercial real estate since prices bottomed, is jumping into residential property as housing recovers.

The private-equity firm has spent more than $250 million this year buying foreclosed single-family houses with the intention of renting them out, said two people with knowledge of the effort. The goal is to acquire enough assets to potentially take public as a real estate investment trust, or sell to another company or even to tenants, said the people, who asked not to be identified because the plans are private.

Blackstone Group LP has acquired more than 1,500 houses around Phoenix and Southern California.

Blackstone, which has loaded up on strip malls, warehouses and suburban office buildings in the past two years, is turning to residential real estate after a 34 percent plunge in prices since the 2006 peak.

The New York-based company is the biggest investor seeking to enter the single-family leasing market as rents climb and the U.S. homeownership sits at a 15-year low, joining rivals including KKR and Colony Capital LLC.

“It’s turning into a $10 billion industry,” said Colin Wiel, managing director and co-founder of Waypoint Homes, an Oakland, California-based company that has bought about 1,800 distressed homes for rent with backing from investors including GI Partners and Columbia University. “There’s a lot of competition.”

Blackstone’s real estate group has teamed with principals of Treehouse Group LLC of Temp e, Arizona and Dallas-based Riverstone Residential Group to buy and fix up the homes, find tenants and maintain the rentals, said the people familiar with its strategy. Riverstone is an apartment-management company founded by brothers Nick and Peter Gould, owners of U.K. property-investment firm Regis Group Plc.

The venture marks Blackstone’s first major foray into the U.S. residential market. The company was the top buyer of commercial real estate in 2010 and 2011, spending about $16.7 billion, according to Real Capital Analytics Inc. in New York. Deals included the $9 billion purchase of more than 500 shopping centers from Centro Properties Group and industrial properties valued at $1 billion from Prologis.

U.S. commercial-property prices have gained about 26 percent from a post-crash low in January 2010, according to an index compiled by Moody’s Investors Service and Real Capital.

In the housing market, price declines are easing. The S&P/Case-Shiller index of values in 20 U.S. cities fell 1.9 percent in April from a year earlier, the slowest pace since 2010.

While mortgage rates are at record lows, rental demand has climbed because many Americans can’t buy homes because of insufficient income or bad credit, or because they prefer the flexibility of renting. Monthly apartment rents in the U.S. have jumped almost 6 percent since the end of 2009, to an average $1,018 in the first quarter, according to Reis Inc.

Blackstone has an advantage over competitors in the housing rental market in terms of readily available capital. The firm is raising $13 billion for what will be the largest-ever private equity real estate fund.

Others are using a series of small private funds. KKR is working with Atlanta-based homebuilder Beazer Homes to raise money by selling shares for a non-public REIT.

Buyers of foreclosed houses face the challenge of managing properties scattered among different neighborhoods and states, compared with managing an apartment building with hundreds of units within one property. Bargain-seeking investors also are finding that home prices have begun to rebound in many markets, making it harder to accumulate homes at deep discounts.

For Sale

Has The Housing Market Hit Its Bottom?

We have recently come across the following article which was written by Morgan Brennan of Forbes business news and financial information. It makes interesting reading, especially her comments on the Orlando and Miami markets.

Has the U.S. housing market hit a bottom? Do we have further to go? When will a recovery start? These are the questions every homeowner and real estate investor are currently asking themselves — or should be.

Wall Street firms have optimistically been betting that the bottom’s here. Research firms like Zelman & Associates predict the sector will pick up this year and hedge funds have been jumping into real estate-related investments from brick and mortar building purchases to shares of home builders stocks. In December Goldman Sachs Group released a report stating that “The home price bottom [is] in sight,” according to my colleague Agustino Fontevecchia.

Indeed national home price data indicates that the worst of the catastrophic home price implosion is behind us. Clear Capital, a Truckee, Calif.-based real estate research firm, reports that 2011 saw a national decrease of 2.1% in home prices when compared to 2010. While still a loss, it’s measly drop compared to the double-digit plunges felt in the years before. For 2012, the firm’s Home Data Index (HDI) Market Report also predicts a humble 0.2% gain across all markets. “Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Dr. Alex Villacorta, Clear Capital’s director of research and analytics, in the report. He further notes that “the current balance the market has found will continue through 2012.”

What does all of this mean? Housing from a national standpoint is flattening out; the macro level data suggests we could possibly be at the bottom or near to it.

A Tuesday report from Zillow, a publicly-listed Seattle, Wash.-based real estate data and listing site, shows that November home values “remained essentially flat” from October of 2011 through November, falling only 0.1%. The Zillow Real Estate Market Report, which analyzes home values in 165 metro areas, notes that the addition of 200,000 jobs in December, improving consumer confidence and stronger retail sales indicate that home sales may be more consistent and more frequent in 2012. “With stronger home sales, we’ll see a reduction in the amount of vacant housing inventory and an improved ability to absorb foreclosed homes. This increased demand will eventually start to put a floor under home values later this year,” the report says.

It sounds rather promising, doesn’t it? For Wall Street firms snapping up stocks and/or using the market as an indicator for economic activity, it is. For homeowners, however, a different story prevails.

If you are a prospective home buyer or seller wondering if now is the time to make a play, the decision should come down to something much more tangible than a “flat” national market number. It should come down to location.

Clear Capital warns that the relatively flat national average is comprised of metro markets that have been anything but: “Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24%), returning year-over-year price movement that can be considered stable,” the HDI report cautions. ‘Stable price movement’ means price swings of less than 2.5%. The company believes only 40% of the country’s largest metro areas will be stable in 2012. Among them: Denver, Colo., San Jose, Calif., Boston, Mass., Oklahoma City, Okla., and San Francisco, Calif.

As for the areas where prices may actually appreciate the most this year, the firm expects Orlando, Fla. home prices to rise 11.7%, hard-hit Bakersfield, Calif. 11.1%, government jobs-driven Washington, D.C. 9.3%, foreclosure-riddled Phoenix, Ariz. 8.9%, and sales-heavy Miami, Fla. 8.8%.

Markets that will experience further price drops this year include Atlanta, Ga. (14.4% anticipated loss), Los Angeles, Calif. (10.3% anticipated loss), Seattle, Wash. (7.5% anticipated loss), Oxnard, Calif. (6.7% anticipated loss), and foreclosure capital Las Vegas, Nev. (6.4% anticipated loss).

Zillow’s November data shows price fluctuations from metro area to metro area, as well. It clocks 66 markets where home values depreciated in November, 66 markets where values rose and 33 where values simply remained flat. Zillow’s economists caution that elevated foreclosure rates and negative equity will continue to impact local markets in 2012, meaning still lower values yet-to-come in some markets. For that reason, the company doesn’t expect a true stabilization in home values to occur until the end of this year or early 2013.

I think they are right. Even if the worst of the price depreciation hemorrhage is over, we still face a wave of distressed inventory undergoing the tedious foreclosure process and an estimated shadow inventory of 1.6 million bank-owned or distressed homes that have not yet hit the sale block, according to CoreLogic. It will mean millions of discounted units flooding markets already saturated with more units than buyers, dragging overall home prices down in terms of both listing prices and property appraisals.

So whether a bottom in housing is here or not depends on the local market. Most foreclosure-riddled markets will likely have years to go before values meaningfully move upwards. Markets where employment is plodding back and/or where overbuilding didn’t occur in the mid-2000s will and are showing more promising, more stable prices. ”It will be very important for consumers to draw a distinction between the end of sustained home values declines, which are maybe a year away, and the return to normal market conditions with historically normal appreciation rates,” Zillow notes.

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Poinciana, Florida – a great place to live and invest in

As our clients will know, we are firm believers in the freehold house market in Orlando, Florida. Quality 3/4 bedroom homes with tenants in place and net rental yields of 4% plus p.a. can now be bought from under US$100,000. Poinciana is a quality residential area that offers a wonderful lifestyle for its residents. You can find out all about it by visiting;

It is worth taking a few minutes of your time to look at what Poinciana has to offer. You will quickly see why we are firm advocates of the area and the homes on offer.

Statue of Liberty

Growing US confidence in housing recovery

The following article appeared in the South China Morning Post today and confirms the change in sentiment in the US towards the real estate market there.

‘Potential homebuyers and sellers are growing more confident that the US real estate market will begin to recover as soon as next year according to a Prudential Real Estate survey. Sixty per cent of 1,251 people surveyed last month had positive views about the housing market and 70% expected property values to improve over the next two years. About 63% said they considered real estate a good investment, the US broker reported. Survey respondents were 25 to 64 years old with a household income of at least US$50,000 and either recently bought or sold a home or were considering a purchase or sale’ Bloomberg

USA

US renters are losing their leverage

Florida Realtors recently released the following which makes interesting reading;

During the boom years of homebuying, property manager Charlie Biter used to offer new apartment tenants one or two months’ free rent as a lease enticement. Now, as rental demand continues to surge, no such offers are necessary. “Back then, everybody was being creative to bring renters in,” said Biter, who oversees 2,000 apartment units in the Nashville area for Continental Property Management. “But now I’m not aware of any units offering concessions.”

Across the country, as more people compete for apartments in the wake of the housing collapse, the market has swung in favor of landlords. For tenants, that means saying goodbye to move-in incentives and watching rents edge higher. About a quarter of all apartments nationwide offered some type of concession in last year’s fourth quarter. By comparison, 53 percent of apartments offered concessions in the first quarter of 2010, according to data tracker MPF Research’s latest report. “The industry moves in cycles, and right now not a lot of apartments are available,” said Jay Parsons, an analyst at MPF Research. Until apartment construction catches up to demand, landlords will maintain their control of the market, he said.

The vacancy rate in Pittsburgh, at 2.2 percent, is among the lowest in the country, according to MPF’s fourth-quarter data from 2011. University of Pittsburgh master’s student Harrison Murphy knows the difficulty first-hand. Four years ago, he found an apartment within an hour of searching, he said. Now, not only are rentals harder to come by, but many landlords require stricter background checks. “I have been unable to find a single place that doesn’t require a recommendation from your previous landlord, with some even asking for recommendations from teachers,” Murphy, 24, said.

In New York, too, as rental demand swells in some of the most desirable neighborhoods, rates are reaching new highs. In 2011, average rents across all apartment categories rose 8.4 percent compared with the year-ago levels, according to the Citi Habitats annual report.

In Chelsea and the East Village, average monthly rent in January for a one-bedroom apartment hit $3,218 and $2,616 respectively. Both neighborhoods have vacancy rates below 1.5 percent. Furthermore, landlord concessions in New York plunged 68 percent from 2010, according to the report. “With high demand in the marketplace, landlords were not likely to negotiate with potential renters, and needed to do little to attract clientele to their available apartments,” said Citi Habitats President Gary Malin.

In Portland, Ore., one of the country’s tightest markets, the year-end vacancy rate was 3.1 percent, according to the Barry Apartment Report, a local data tracker. “Nobody’s giving concessions. That’s history,” said Joe Weston of Weston Investment, which owns 3,000 apartments in the Portland area.

In April, his firm plans to raise rental rates about 5 percent. “People living in suburbia are moving to the city center,” he said. “And some of those people were foreclosed on and are now renting.”

Warren Buffett

Warren Buffett : I’d buy up a couple hundred thousand single family homes if I could

When probably the greatest investor of our time makes a statement like the above then it is time to site up and take notice. Warren Buffett says along with equities, single-family homes are a very attractive investment right now. Appearing live on CNBC’s Squawk Box (http://www.cnbc.com/id/46538421 – 5.10 minutes in) Buffett says he’d buy up “a couple hundred thousand” single family homes if it were practical to do so. If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks.

All property markets recover and the USA will be no different. Markets such as Florida offer superb opportunities to buy single family homes at below replacement cost and with strong net rental yields of 5% plus. If Warren Buffet thinks now is the time to invest in this sector, then it is definitely time to do so.

Recovery

Optimism is building that the US housing industry is nearing a bottom — finally.

USA Today seems to sum up the position of a number of independent commentators. According to this source:

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression. Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates. Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.

More improvement is expected for: ‘•Sales. Existing home sales will rise 12% this year after a 2% increase last year, and new home sales, coming off a horrid year, will jump 74% this year, Moody’s Analytics predicts. November’s existing home sales hit their highest mark in 10 months, and new home sales were the year’s second best, IHS Global Insight says.
•Construction. Single-family housing starts will rise 37% this year, Moody’s predicts, after falling 9% last year. Home builder stocks are on a run. The S&P 1500 homebuilding index is up 38% since mid October, vs. 7% for the S&P 500.

We have often been told that if you can buy within 10% of the bottom of the market you are an investment guru. You can become one by buying the right USA property now.

USA

USA Update

A well respected, internationally known newspaper’s blog has just run the headline

Housing Inventories Fall to New Four-Year Low in October

The supporting article states;

‘The 2.12 million homes listed for sale in October was down by 3.5% from September and down by 21% from one year ago, according to data compiled by Realtor.com’ The Realtor.com figures include sale listings from more than 900 multiple-listing services across the country. They don’t include all homes for sale, including those that are “for sale by owner” and other properties that aren’t marketed through multiple-listing services.

Inventories typically rise by around 0.8% in October from September, according to Zelman & Associates, a research firm. But they have been falling for several months amid a slowdown in foreclosures by banks and as home sellers, frustrated by low-ball offers, hold their properties from the market.

The National Association of Realtors also reported a decline in the number of homes on the market. At the end of October, total housing inventory fell 2.2% to 3.33 million homes, the lowest level of the year.’

You would assume from this for this that the over supply of unsold homes in the US is showing signs of dissipating. However, as several commentators to the blog commented;

• Take NAR’s figures with a grain of salt…and a beer and aspirin
• Is anyone counting the number of homes “FOR SALE BY OWNER”? Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• And now, the rest of the story: the numbers of buyers also fell to its lowest level in four years. And that’s why prices keep falling. 9% unemployment will do that.
• Article doesn’t mention shadow inventory still on banks books

Agents and optimists (usually the same thing) will jump on any piece of good news that encourages people to buy. The fact is, there is little if any real evidence to support the fact the market has bottomed out. Nevertheless, if we are not there yet it is a reasonable bet we are not far off.