Jude Rasmus

By Michelle Conlin
Source: Reuters.com

(Reuters) - When Vena Jones-Cox entered the foyer of the once-grand Colonial-style home in downtown Columbus, Ohio, she stepped onto a wood floor that was so moldy and mushy that it actually wiggled. As Cox proceeded down the basement stairs, they disappeared from underneath her.

"I found myself lying on the floor," says Jones-Cox, 45. "Staring at a dead rat, by the way."

The house tour from hell didn't stop her from making an offer on the place. While she was at it, she bid on some other houses, too. Forty nine houses, actually.

She's paying $3,000 for each, a bit more than the cost of an Apple Mac Pro. "We're at a bottom," says Jones-Cox. "I mean, where else is there to go but up?"

As the greatest real-estate fire sale in the history of the United States rages on, the bulk buy is the dead hot deal of the moment. In some of the most foreclosure-ravaged parts of the country, it is almost as if the housing market has become the new big box store, with investors wiping out whole shelves at a time.

The idea is to arbitrage other people's misery. With the ranks of the rental class expected to swell, investors can buy houses at clearance sale prices, pour some money into repairs and then take advantage of the difference between their low cost of capital and the rent they receive. Often, they bank cash from day one.

Hedge funds and private equity shops like McKinley Capital Partners started to quietly become landlords by buying up inventory last year. Now Main Street investors are following suit.

"They aren't just buying one rental property," says Oak Park, Illinois realtor Kyra Pych. "This is a frenzy. They are loading up."

Pych has five clients who are in the process of buying more than one condo in Forest Park. Illinois. Units that sold for $180,000 during the boom are now going for as little as $13,500. So instead of putting that money into a retirement account, her customers are putting the cash into homes and renting them out.

In Detroit, the Midwest's aspiring Donald Trumps are buying bungalows for $500 each. In Atlanta, a group of Florida investors are in the process of buying the remaining 322 units in downtown Atlanta's swank, Art Deco Atlantic Residences, with room service and maids, near Atlantic Station. The prices start at $180,000.

In California, Waypoint Homes, which has already purchased 1,000 single-family homes, got $250 million in funding in January from Menlo Park private equity firm GI Partners for more bulk buys.

"The floodgates are starting to open," says John Burns, the founder of Irvine, California-based John Burns Real Estate Consulting. "There's billions of dollars of capital, of my clients alone, (looking) to invest in single-family rentals."

GETTING EASIER TO BUY

Up to now, the business of buying foreclosed homes was often an old-fashioned affair. They were usually one off deals, and often involved an auction on the courthouse steps.

But the recent news of Fannie Mae's pilot auction of a bulk sale of 2,500 homes was a signal to many housing experts that bulk buying is about to undergo a quantum change. The coming auctions will not only put mammoth amounts of inventory up for bid; they will also streamline and automate current procedures.

Amherst Securities managing director Laurie Goodman, a major housing bear who expects further declines in home prices, believes such bulk sales are the key to cleaning out the foreclosure pipeline before any kind of housing recovery gains traction.

It is not hard to see why U.S. housing is turning into the new value asset class of the moment. In an analysis of the 325 major metropolitan real estate markets across the globe, the U.S. was home to the top 24 most affordable markets, according to Demographia's 2012 International Housing Affordability Survey.

No one can argue with the landlord's seductive math. There are bank accounts and bonds and annuities with their less-than-one-percent returns, and then, west of Boca Raton, there's the string of newly-renovated two-bedrooms overlooking the golf course, pool and cabana, along with all the people who have been foreclosed on who are now looking to rent.

For $19,000 in cash, investors can pocket $300 a month, after taxes and homeowner association dues, on each, a 19 percent annual return that compares to the zombie yields from most savings accounts.

In Charlotte, North Carolina, Cheryl and Bob Littlefield, who have five children, are already making the bulk buy work.

Two years ago, the Littlefields inherited $200,000. They considered all of their investment options. Like a lot of people, they found the stock market to be a scary, bi-polar nerve frayer. Bonds and bank accounts offered nothing.

Then there was the lovely little house for $16,000. After putting in a few grand, they cleared $600 a month, after taxes. It went so well they bought another house. And then another. Now they own eight and are in the midst of exploring financing to do a bulk deal for several more.

"I know houses, I don't know stocks," says Cheryl Littlefield, who estimates rental income covers 40 percent of the family's expenses, the rest being covered by her husband's work as a contractor. "I don't know what to do if something goes wrong with Exxon Mobil. I know what to do if something goes wrong with a house."

CAN'T BUY, BETTER RENT

The cruel irony known to every aspiring homeowner is that there has never been a better time to buy a house. It is cheaper to own - based on the monthly payments at the current interest rates of under four percent - than it is to rent in just about every market across the United States. In Phoenix, for example, it is 21 percent cheaper to own than it is to rent. In Minneapolis, it is 28 percent, according to Burns.

But most who aspire to the property ladder are shut out of the homebuying opportunity. They have no access to credit. They are crushed by record-levels of student debt. A greater share than ever of their paycheck is already going to housing costs, according to Harvard University's Joint Center for Housing Studies.

That's where bulk buying comes in to play.

Often, the buyers use the cash they would have otherwise put in a retirement account and put it in houses. People can also use their individual retirement account funds to invest in real estate for use as rental properties.

There are no official statistics on the growth of the bulk buy. But no less than Warren Buffett recently said in a CNBC interview that he would like to "load up" on a couple of hundred thousand single-family homes because it is a "very attractive asset class now."

Buffett said what held him back was that the business of being a landlord, of managing the homes, was "enormous."

As it turns out, one no longer even needs to be handy thanks to a new cottage industry of companies that has grown up to manage virtually everything for a landlord, down to the art of hectoring the renter for the rent.

Property management outfits have popped up all over the place, from the high-end down to online companies like gorenter.com, which charges as little as $25 a month.

BUBBLE OFF THE BUBBLE?

That is not to say buying houses in bulk does not pose steep risks. Morgan Stanley analyst Oliver Chang christened 2012 as the year of the landlord. But other analysts, like Bank of America's Michelle Meyer, expect house prices to fall another 7 percent through 2013.

And if the European debt situation deteriorates, or some other economic variable jolts the economy into another recession, all these aspiring property moguls will find themselves with too many vacancies and too much leverage, especially if they have borrowed heavily to refurbish. In other words: another bubble in the making.

That's not to mention the deals that, no matter how bullet proof they may seem at the time, can still blow up in your face. Just ask all those guys from Orange County, California, who bought in bulk during the boom. Instead of turning into real estate barons, they went bankrupt.

Jones-Cox, she of the 50 homes, has been involved in real estate in Ohio since the late 1980s. She had never looked at bulk buying until last year.

Before she bought her latest homes, she toured each one. She says the condition went from "bad" to "dreadful." "Some of them had no walls, no windows, no furnace, no wiring, no sink," she says.

Her plan is to rehab each house for about $20,000 a piece.

She has studied the housing stock in the neighborhood. She says most of it would fit right in with the Third World. She has also studied the demographics and how much people are currently paying for rent. All the math works in her favor, she says.

She doesn't see how the play could go wrong.

Then again, Jones-Cox concedes, she never thought she would ever be able to buy a house for $3,000, either.

By Stefanos Chen

Source: AOL Real Estate

Fannie Mae waded further into the foreclosure pool on Monday as it released new details on its plan to sell its repossessed homes as rental properties.

The pilot program, first announced in August as an effort to clear the mortgage giant's backlog of foreclosures,is launching with an initial offering of 2,490 residential properties in some of the hardest-hit markets. The largest percentage of homes (23 percent) is located in Atlanta, with Los Angeles/Riverside and WestFlorida rounding out the top three. (View a breakdown of the properties below.)

Buyers can include corporations, investment trusts and even individuals, so long as they meet eligibility requirements and agree to rent the properties for a set number of years.

An Underwhelming Debut?

But after months of anticipation from REO investors and market analysts, some experts were unimpressed by the program's first offering.

An analysis of the available properties by analytics company Capital Economics found that 85 percent of the units are already occupied.

"Frankly, it doesn't really address what we hoped the REO scheme would address," Capital Economics analyst Paul Dales told AOL Real Estate. Namely, he said, their goal should be twofold -- to reduce the number of vacant homes on the market, which drive down home values, and to help lower the cost of renting by providing new rental units to the market. Neither of which is really tackled by the initial REO offering.

He does give the program the benefit of a doubt, though -- they may be trying to sell off the low-hanging fruit first. Selling properties with tenants already in them ensures a steady stream of income for the investor. Dales says that he suspects the strategy will shift toward moving more vacant properties, as soon as the program feels out its investor base.

Will Investors Bite?

Donna Robinson, an Atlanta-based REO specialist and consultant, doesn't think offering occupied properties is necessarily a bad thing -- it just leaves a lot of unanswered questions for investors.

"Most landlords aren't big, highfalutin investors," Robinson said, but those who do qualify for the program will have several questions about the quality of their inherited tenants, and the terms on the leases. And for those purchasing larger pools of properties, trying to standardize lease terms only becomes more involved as the distance between properties and the number of tenants grows.

The FHFA said it will make more details available -- presumably answering some of the above -- to prospective investors who pass through a "rigorous" qualification process and sign a confidentiality agreement.

What remains to be seen is the typical size of the foreclosure pools that the program hopes to unload on investors, and at what rate of discount. The nearly 2,500 properties released for sale in the initial offering represents only about 1 percent of all foreclosures owned by the government sponsored enterprises, which include Fannie Mae and Freddie Mac, according to Capital Economics. In August, there were nearly 250,000 foreclosures owned between Fannie Mae, Freddie Mac and the Federal Housing Administration.

Even under optimal conditions, an analysis of the program by Goldman Sachs suggested that the project would have "positive but modest" effects, with maybe a 0.5 percent increase in home values within the first year.

But if more buyers share the same zeal for the prospect of single-family investing as renowned investor Warren Buffet, the program could be off to a great start. Buffet recently told CNBC that he would buy up "a couple hundred thousand" single-family homes if it were practical, and for the right price, going so far as to say that houses are a better investment than stocks at the moment.

Whether or not his peers will pony up to clear the more-than-200,000 inventory of FHFA-managed home foreclosures remains to be seen, but the market waits for no one. The New York Federal Reserve Bank predicted another 3.6 million foreclosures nationwide over the next two years.
Breakdown of Properties in the Pilot Offering:

By KAREN BLUMENTHAL

Source: The Wall Street Journal

Being underwater on your home is bad enough. But owning a home that is worth less than what you owe on your mortgage also may mean that your lender is keeping a wary eye on you.

Roughly one in five foreclosures is believed to be "strategic"—that is, the homeowner has the ability to pay the mortgage but walks away anyway—rather than as a result of economic hardship. The threat of additional strategic defaults has spread as home prices continue to fall.

Average U.S. home prices slipped again in November, back to about where they were in mid-2003, according to the latest S&P/Case-Shiller home-price indexes. While the problem has been most concentrated in the hard-hit "sand states" of Florida, California, Arizona and Nevada, home prices continue to slide in cities like Atlanta, Cleveland, Chicago and Seattle.

In a January report, the Federal Reserve estimated that more than one in five homeowners with a mortgage—about 12 million in all—are underwater on their loans.

Being underwater, of course, doesn't mean a homeowner will walk away. Strategic defaults still are rare in some areas and may depend on when homeowners think prices will recover and whether they blame banks or themselves for the price decline, says Michael Seiler, a finance professor at Old Dominion University in Norfolk, Va., who has written extensively on the subject.

A Default Contagion

Strategic defaults can spread in communities like a contagion, Mr. Seiler says, especially if influential real-estate experts with large social networks, whom he dubs "mavens," are advocating the practice. The more such defaults, the more a neighborhood's prices are affected and the more likely others may feel enticed to default.

To help lenders try to curb foreclosures, Fair Isaac, the creator of the FICO credit score, offers a service intended to help identify potential strategic defaulters before they skip payments.

In studying strategic defaulters, FICO found that they tended to have good to excellent credit scores and show skill in managing money. They tend to use less of the credit available to them on cards and generally avoid retail credit. Often, they have large mortgages and made relatively small down payments.

Notably, they were likely to have sought new credit in the six months before they stopped paying their mortgages—and they continued to stay current on other debts even as they let their home payments go.

Joanne Gaskin, senior director of scores and analytics at Fair Isaac, says that FICO's model assigns borrowers a score from one to 300. Those who score between one and 120 have a high likelihood of strategically defaulting within the next year.

Forestalling Foreclosure

The information can allow mortgage servicers to begin to work with borrowers before they stop paying. Ms. Gaskin says. It may also help lenders move more quickly to encourage borrowers to work out a solution that is preferable to foreclosure, such as a loan modification or a "short sale," in which a home is sold, with the lender's approval, for less than what is owed on the mortgage.

Credit bureau Experian helps lenders find borrowers who already have missed payments and are likely to be headed to a strategic foreclosure so that the lenders can adjust how they work with them. The firm found that in addition to good credit scores, strategic defaulters tended to have higher incomes and larger mortgages, and often own more than one property.

Among the very small percentage of people who seek out a new mortgage before halting payment on the old one, almost half are strategic defaulters, Experian says.

Using the data, a credit-card company might halt its preapproved offers once mortgage payments are missed, or make preapproved offers that take into account borrowers' recent actions, says Angela Granger, an Experian vice president.

The decision to strategically default is a ticklish one, since homeowners need to weigh the significant consequences to their credit-worthiness against the impact on their savings. People who need to move and who owe far more on a home than what it is worth may have to choose between cleaning out a college or retirement account or letting the home go.

However, Fannie Mae says it will take legal action to recoup its losses if it believes borrowers have the ability to pay. It won't back a new mortgage for a borrower for seven years after a strategic default.

The decision also can wreak havoc with credit scores. A high credit score can drop up to 300 points after a strategic foreclosure, and won't return to the same starting score for five to seven years.

The better solution, say experts, is to work out a short sale, or even negotiate a "deed in lieu of foreclosure," in which the keys are formally turned over to the lender, which at least shortens the costly foreclosure process.

Borrowers who work out a short sale may see their scores decline almost as much initially as in a foreclosure, but they should recover sooner.

By Motoko Rich, New York Times News Service

Source: The Boston Globe

The housing market remains a potent drag on the economy as home prices continue to slip, foreclosed homes fill some neighborhoods, and millions of construction workers scramble for jobs.

But one group is sitting pretty: landlords.

Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation, released by the Labor Department.

With few rental buildings erected over the past few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade, according to the research firm Reis Inc.

Rent increases are greatest in places like San Francisco; Austin, Texas; and Boston, where technology companies in particular are hiring, as well as in New York City and Washington, D.C. But cities like Chicago and Seattle, where house prices are still declining quite sharply, have had rental increases, too.

“We are more of a renter nation than we have been for a while,” said Christopher J. Mayer, a professor of real estate at the Columbia University Business School.

Economists suggest favorable conditions for landlords will continue for at least a year, with employment gradually rising and apartment construction remaining constrained.

As job growth has begun to accelerate in recent months, young people are starting to move out of their parents’ homes or away from shared rooms and into their own rentals. Families who might previously have bought homes are also staying in rentals longer. They may be waiting for the housing market to hit bottom or finding it difficult to qualify for a mortgage.

Many others remain uncertain about their job prospects and wary of the obligations of ownership after the housing bust.

When Charles Griffith moved with his wife and two children to Orlando, Fla., last fall, they chose a new two-bedroom apartment for $1,140 a month. They left a four-bedroom, 2-1/2-bath house they had bought a decade ago in Antioch, Calif. His brother-in-law has moved in and taken over the mortgage payments.

Griffith, who works as a supervisor for Southwest Airlines, and his wife, a customer service representative for the airline, are enjoying the flexibility and convenience of renting, as well as amenities like a pool.

“We kind of like the situation now of not having to be under so much pressure,” said Griffith, 40, adding that the family may eventually buy in Orlando. But “with the economy and the airline industry, that factors into us thinking maybe we should hold off for a while.”

The home ownership rate has been falling from its peak of 69.4 percent in 2004, according to census data. By the fourth quarter of 2011, it was down to 66 percent. That means about 2 million more households are renting, said Kenneth Rosen, an economist and professor of real estate at the Haas School of Business at the University of California, Berkeley.

Not all those people are choosing apartments, of course. Some are moving into single-family homes left vacant by foreclosures. Eager to capitalize on the trend, investors are scooping up some houses at a deep discount and leasing them to tenants who have lost their own homes.

Several prominent hedge funds and private equity firms have recently announced plans to invest in distressed properties and convert them to rentals. And earlier this month, the government solicited applications from investors interested in buying pools of foreclosed properties held by Fannie Mae and Freddie Mac, as well as the Federal Housing Administration.

Investors could help the market by turning empty houses into rentals, said Diane Swonk, an economist at Mesirow Financial in Chicago.

“It can make the difference between a neighborhood being literally like Detroit -- dead forever -- or a neighborhood that has another chance at life,” she said.

Still, it is apartments, not houses, that are in the most rental demand.

Although many families crushed by the recession have doubled up and plenty of underemployed 20-somethings are living with their parents, some young people are finally getting their own space. Nearly 60 percent of job gains in the past two years have gone to people who are 20-34, a crucial rental group, according to an analysis of Labor Department data by G. Ronald Witten, a consultant to apartment companies.

During the economic downturn, apartment developers retrenched. The number of new apartments completed fell from 284,200 in 2006 to less than half that number in 2011, according to census data.

The limited supply is pushing up prices in some markets. In San Francisco, rents jumped close to 5 percent last year, according to Reis, and increases averaged 3 percent in Austin and New York. Landlords have also been withdrawing incentives like a free month’s rent.

Liz Brent and Matt Mochizuki moved into a studio apartment a year ago in the Mission District in San Francisco for $1,395 a month. Now they want more space.

Brent, 26, makes costumes and is working as a barista at a cafe where customers leave big tips. Mochizuki, 27, has a steady job with a metal fabricating studio. They are budgeting $1,800 a month in rent.

But at an open house for an apartment billed as a one bedroom, they found a studio with an awkward layout and bad light. More than 40 people were in line, many ready to hand over a check.

“That’s what the market is like now,” Brent said of her fruitless search. “That’s how many people showed up for this tiny apartment with no windows.”

A few metropolitan areas are experiencing a much softer rental market. In Atlanta, owners of vacant condos are lowering rents to attract tenants, and in Las Vegas, homes are taking six weeks to lease and rents are still well below their peaks, said C. Terry Robertson, broker of Desert Realty.

Orlando might seem an unlikely place for rental strength. The unemployment rate, at 9.7 percent, is higher than the national average, and home prices slipped 4.6 percent last year, according to the Standard & Poor’s Case-Shiller home price index.

Yet Ric Campo, chief executive of Camden Properties, a real estate investment trust that owns apartment buildings, said rental business was brisk at its LaVina development. Since the office for the 420-unit complex opened last summer, more than half the apartments have rented.

That’s “a faster rate than we’ve ever seen in Orlando,” Campo said. The company has raised the base rent on a two-bedroom apartment to $1,080, from $995 a month.

Many are left to wonder whether the housing collapse has had a more profound effect.

“I think it’s going to be interesting to see whether there’s been a fundamental sociological shift in that 20-35 year old cohort, where they literally say ‘this American dream just doesn’t work for me,”’ said Brad Forrester, chief executive of the ConAm Group, which manages about 50,000 apartments in the western United States.

Matt Byford, a 24-year-old litigation consultant in Chicago, is certainly in no hurry to buy. He has been renting in the Lincoln Park neighborhood since his college days.

Given the low purchase prices and record low interest rates, Byford acknowledges that the financial scale probably tips more toward buying than renting. “Since I can pretty much assume with confidence that it’s not going to go anywhere,” he said, “I don’t necessarily have a sense of urgency.”

By: Joe Rauch

Source: Atlanta Business Chronicle

For the hottest neighborhoods when it comes to Atlanta real estate, look no further than the places with the best schools.

Real estate agents, builders and industry analysts said homes in the highest demand in 2011 were in the metro area’s best school districts.

Parents are looking to take advantage of depressed prices to move into better school districts before the excess supply of homes in these areas dries up.

“It used to be call white flight, but now I’d call it educational flight,” said Dan Forsman, CEO of Prudential Georgia Realty. “[Parents] want to put their kids in the best school districts. It’s all about the schools and the kids.”

Real estate agents said North Fulton, East Cobb and South Forsyth were all areas with relatively heavy demand right now, in large part because of the strength of their school systems.

And the data appears to back up the anecdotal view.

Open market sales, excluding foreclosures, were highest in Fulton County in 2011, with 5,324. Atlanta’s core county was followed by neighboring Cobb and Gwinnett counties.

Forsyth County totaled 1,514 open market sales in 2011, but had the second-highest average sales price of any of the 11 metro counties surveyed by Bridge Interactive Group LLC.

In contrast, Clayton County — with its school system’s well-chronicled struggles — posted the the third lowest number of sales with roughly 1,000 and lowest average sales price for homes in the metro region at roughly $66,000 last year.

Many view 2009-2011 as a reset for the broad expectations for Atlanta’s real estate market.

“This is our 1934. This is our baseline year,” said Mason Maynard, referring to the year during the Great Depression that saw a series of sweeping economic and political changes that affected the country for decades to come.

For some sellers, the calculus has swung over the last year from waiting for the market’s rebound to simply escaping the fatigue of the last few years, real estate agents said.

“People are tired of waiting at this point,” said Carrie Faletti, a Realtor with Atlanta Fine Homes Sotheby’s International Realty.

Sellers are willing to get rid of a property at this point, real estate agents said, if they can find a similar bargain when they’re hunting for the replacement home.

But one logjam she notes is that homebuyers are not moving up the price chain when they buy their next home, she said.

“It’s difficult for people to move up,” she said, noting that buyers often simply stay at the same price point, given depressed prices and buyers looking for a good deal.

One motivator for the market, Faletti said, would be corporate relocation.

There were few companies moving in 2009 and 2010, she said, creating another drain on the market of both eager sellers and buyers.

Buyers, real estate agents said, still largely exist in the king of all buyers’ markets.

Agents said buyer bidding wars are largely nonexistent outside of several key Atlanta markets, with many buyers looking to buy foreclosed homes for less than $100,000 per year.

For foreclosed homes, the story varies widely depending on the location.

And when selling foreclosed homes in in-demand neighborhoods, the banks are laying out higher prices and tougher terms.

“They’re playing a little more hardball,” said Becky Vinson, a real estate agent with Realty Associates of Atlanta.

“There’s still deals, just not as many on foreclosures and short sales.”

For now, the sales market inside the city’s core appears to be much healthier than the outlying regions.

“We’re not taking much of a hit intown,” said Ben McKenzie, Realtor with Prudential Georgia Realty, who focuses primarily on intown home sales. “It’s a beauty contest and price war right now.”

But in far-flung suburbs, foreclosure sales are still seeing plummeting prices.

In Gwinnett County, for example, once a high-flying hub of Atlanta’s suburban expansion, foreclosures in 2011 were roughly half those posted in 2010, but prices for those foreclosed homes had dropped over the last two years to roughly half their 2009 values.

One area that will lag the broader housing market’s sales, agents said, are condominiums.

The large projects — concentrated in Midtown, Buckhead and other bustling intown neighborhoods — were a high-profile symbol of the construction that took place during the mid-decade housing boom.

But agents said condo sales will likely take more time to catch single-family home sales.

“There’s a number of developments in Midtown that are looking to close out” their last few units and, McKenzie said, the sellers of those units are not as concerned with price in the current market.

Even amid the sluggish sales figures, across the metro market, new-home builders are expressing signs of cautious optimism.

Chuck Fuhr, division president for Ryland Homes of Atlanta, said he projects to build about 225 homes in 2012, up from 178 in 2010.

Fuhr said his company’s new homes are able to compete with the existing pool of homes because some buyers are determined to buy a new home — whether for warranties or improved energy efficiency — over an existing home. But, he said, builders are being selective, choosing only the most in-demand neighborhoods and lots for new projects.

“Sales are moving in the right direction, as painfully slow as it might be,” McKenzie said. “But it’s tough to project what the definition of the new normal will be.”