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Is real estate flipping the answer to an economic recovery?

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Abandoned California home photographed by Orin Zebest.

Asking recovery questions from another angle

It is no secret that there is a crisis in housing. Analysts vary on their opinion as to whether or not real estate has hit the bottom, and there is contentious disagreement about when a recovery will be in full swing.

Pending home sales (contracts signed) beat economists’ projections last week, perking up some analysts’ opinion on the market, but at the same time, National Association of Realtors Chief Economist Lawrence Yun is casting a hesitant and cautiously optimistic forecast for the coming years.

Lawsuits are flying in the banking world with homeowners suing for illegal foreclosures, as well as state and federal agencies probing lenders, with the Federal Housing Administration admonishing 240 lenders for violations. MERS is bowing out of facilitating foreclosures and judges are questioning the validity of thousands of foreclosures, throwing the entire process for a major loop with unpredictable consequences.

Regulations are shifting quickly and dramatically, with most industry insiders completely out of the loop, meanwhile, Americans believe troubled homeowners should sell rather than seek or receive federal assistance.

The scene is changing by the minute

With endless economic indicators pointing to a struggle in the housing market and courts changing their view on the foreclosure process, it is a confusing moment for the real estate sector.

Daniel Indiviglio, associate editor at The Atlantic asks, “are ugly houses preventing a home market recovery?”

The logic behind the Utopian question

The logic behind the question is based on Realtor Jeff Lichtenstein’s comment that “what Case-Shiller [home price index] fails to state is that there is a huge differentiation between ‘good inventory’ & ‘bad inventory'” and that clients never call and ask for a dreary home, rather they want a vibrant, beautiful home.

Indiviglio notes the disparity between ugly foreclosures and beautiful homes, opining that flipping the ugly homes for sale or lease would go a long way toward a recovery, noting “if the inventory is tackled through these strategies, then price aren’t going to suddenly soar, but they could begin to stabilize sooner.”

With so many factors at play, could something so simplistic get good mileage in bridging the gap between ugly foreclosures pulling down a market, and beautiful sale-ready listings?

Supporters and critics

Supporters of the theory that real estate flipping could help speed up a recovery could say that this disparity would do wonders for the market, while critics could say that by the time an ugly abandoned foreclosure hits the market, the neighborhood has already taken the hit on values, and the ripple effect ensues.

Perhaps it is a Utopian view, but improving the aesthetics of ugly listings could help, even if some believe flipping contributed to the fall of housing in the first place.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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35 Comments

35 Comments

  1. Manhattan Beach Agent

    August 1, 2011 at 9:21 am

    Big news this last week is that Bank of America, and other banks, are increasingly bulldozing distressed foreclosure holdings. I'm seeing this as a viable option for my clients, where homes bought in bulk REO tapes are so dilapidated, and are neighborhoods that increasingly resemble the Third World, that re-capitalization doesn't make the ROI cut.

    Ideally, though, if flippers can re-capitalize homes in a declining neighborhood, improve the landscape / quality of life, and help turn the tide for local residents, then that's wonderful! That's not possible in all cases, however, as many areas of the country no longer warrant investment; they should be returned to wilderness, or farmland!

  2. Roland Estrada

    August 1, 2011 at 11:32 am

    The idea Lichtenstein presents is ridiculous on it's face. There is not that much investor money out there. The key to economic recovery is jobs. With that comes stability for owner occ buyers to venture out acquire homes.

    That said, the other part of the equation is the banks, both in terms of financing and asset management. The financing aspect is going to take time work itself out by getting a more robust secondary market back in the game.

    The asset management part is something banks can enact almost immediately. Banks can allot funds to refresh the homes under their control in areas of the country where it make sense to do so. This brings money into the community through work for local contractors. Wells Fargo has program called ERA that does exactly that. The will go in and fix things like paint, carpet and appliances. They are burning money the longer they hold on to an assent, so they might as well spend a few bucks to move it faster.

  3. Tina Merritt

    August 2, 2011 at 6:53 am

    As an agent who works exclusively with real estate investors, this is finally a voice of reason. The money is there; the investors have it. The issue has been the recent mentality of "investors bad", "owner occupants good" within the Administration. Owner occupants don't want many of these homes and/or cannot get financing to buy them. OO's don't want (nor need) to become construction site managers with rehab loans. In my area, our average foreclosure costs $37300 to correctly repair and update before even seeing a profit. That's not just a paint and carpet. Banks could move their inventory a lot faster if they would become investor-friendly.

  4. Boise Homes for Sale

    August 2, 2011 at 11:39 am

    I ran into this page accidentally, surprisingly, this is a amazing website. The site owner has done a great job writing/collecting articles to post, the info here is really and helpful when i do research. You just secured yourself a guarenteed reader.

  5. Greg Cook

    August 3, 2011 at 1:47 pm

    I think flippers are part of the solution. Not sure where Roland works but a full third of our market are cash investors. Both the flippers and the buy and hold type.
    For the most part cash investors will win the bidding war more often than homebuyers using FHA financing and that's a disparity we have to correct.

    Value and accurate appraisals will always be the concern as far as lenders are concerned. Which is why FHA and most lenders have some sort of overlay when it comes to flipped properties.

  6. Roland Estrada

    August 3, 2011 at 2:15 pm

    I should have expanded my original point. Flippers are part of a multiple prong solution but not THE solution. As Greg mentioned, cash investors are on third of of his area's buyers. I just don't think there are enough investors to cure all distressed properties. That's the takeaway I got from the Lichtenstein and Indiviglio comments. It's impossible.

    As I mentioned before, bank programs like Wells Fargo's ERA program should play a larger role. They are already taking a loss on these properties. Why not give their assets a fresh look before putting them on the market. It's not like they won't take a write-off on it. Again, just part of an overall solution.

    FYI, my market is Orange County, CA.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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