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Real Estate Big Data

Negative equity is falling, but we’re not out of the woods yet

(REAL ESTATE BIG DATA) The number of homeowners who are living “upside down” continues to decline year-over-year and within the last year, most have seen a 5.1% increase in equity

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Equity line graph

As real estate goes, 2009 is gone and “fingers crossed” it isn’t ever coming back. As data released Wednesday shows, the number of homeowners who are upside down, in negative equity, continues to decline.

CoreLogic, a provider of consumer, financial and property data, analytics and services to business and government, released the report on Dec. 12.

Being underwater, upside down decreased by 4% to 2 million homes or 3.7% of all mortgaged properties, according to the report, which was shared on the Calculated Risk blog. And, 78,000 properties, that were once negative, left the upside down behind and regained equity in the third quarter of 2019.

According to the report, the 64% of U.S. homeowners with mortgages have seen their equity increase 5.1% year-over-year – a gain of almost $457 billion since the third quarter of 2018.

Meanwhile, the number of mortgaged properties in negative equity declined 10% or roughly 220,000 homes in the third quarter of 2019, the report said. In comparison, during the same time period in 2018, 4.1% percent of homes or roughly 2.2 million were upside down.

“Ten years ago, during the depths of the Great Recession, more than 11 million homeowners had negative equity or 25% of mortgaged homes,” said Dr. Frank Nothaft, chief economist for CoreLogic. “After more than eight years of rising home prices and employment growth, underwater owners have been slashed to just 2 million, or less than 4% of mortgaged homes.”

Negative equity can occur for a number of reasons including a decline in the home value or an increase in mortgage debt or both.

CoreLogic began its equity data analysis in the third quarter of 2009. During the fourth quarter of 2009 negative equity peaked at 26% of mortgaged properties.

Even though the numbers of properties in negative equity has declined, there are still nearly 2% of homes with a loan-to-value 125% and higher, according to the report. Yet, year-over-year, the number of homeowners in the negative has declined from 2.2 million to 2 million, according to the report.

Mary Ann Lopez earned her MA in print journalism from the University of Colorado and has worked in print and digital media. After taking a break to give back as a Teach for America corps member and teaching science for a few years, she is back with her first love: writing. When she's not writing stories, reading five books at once, or watching The Great British Bakeoff, she is walking her dog Sadie and hanging with her cats, Bella, Bubba, and Kiki. She is one cat short of full cat lady status and plans to keep it that way.

Real Estate Big Data

Supply crisis hits housing – starts and permits fell in September

(REAL ESTATE) New data from the Commerce Department shows a dip in permits and starts, but if you look closely, multifamily is carrying that weight, so how is single family production going?

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housing starts

Last month, housing starts fell 1.6%, which is only a slight dip, but permits fell 7.7%, and the gap between units completed and those still under construction is the largest on record, according to reporting from the U.S. Commerce Department.

While starts and permits hit a year low and while labor shortages, supply chain issues, and rising prices of raw materials, it should be noted that single-family starts actually remained unchanged, and permits for single family homes only fell 0.9%, so what we’re looking at here is a slowdown in the multifamily sector as sales heat up in single family housing..

Another factor at play here regarding still-tight inventory levels is the federal mortgage forbearance program as a response to the pandemic. As the program wraps up, more inventory will come online.

Dr. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) explains: “The current mortgage default rate of at least three months is running high at 3.5% compared to less than 1% before the pandemic. However, foreclosures have been at historic lows so far due to the forbearance support. The default rate will certainly fall as long as the economy continues to generate jobs, but the end of the federal support program inevitably means some homeowners will need to sell. This will be another source of housing inventory.”

Because tight inventory levels have kept the market restricted and sales below what demand is, the residential real estate sector should see hope in this analysis.

But there is no sector safe from the supply chain crisis or prices rising again on raw materials. Reuters reports that many materials like windows and breaker boxes are in short supplies while the cost of building materials have surged, like copper which is up 16%, and lumber prices are jumping back up to record highs set in May.

Homebuilder confidence is up, according to the National Association of Home Builders (NAHB), but their most recent survey also indicates that “builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times.”

The Mortgage Bankers Association (MBA) reported today that mortgage applications for new home purchases are down 16.2% compared to September 2020, and applications are down 4% compared to August. It is notable that the average loan size hit $408,522, the highest on record, and another indicator of increasing construction costs.

Going forward, analysts expect the backlog of starts to continue as labor and supply chain issues persist. And although the news isn’t overtly positive, single family housing on its own is actually performing better than in 2020. There is light at the end of the tunnel for hopeful homebuyers.

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Real Estate Big Data

A ridiculously easy way to combat bad reviews from non-customers

(MARKETING) Some ratings and review sites don’t verify reviewers, so what happens when a nasty comment about you is left on a ratings site?

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reviews Woman seated on ground writing cold email to clients.

Have you ever found a business through Yelp that you wanted to like but just couldn’t make up your mind about because of the contrasting reviews of the place? Like a restaurant with the best service but had cold soup and an unresponsive hostess, or a B&B that was warm and clean but had an owner who did not provide the second B come morning time?

Some of these outlying negative reviews can be telling of the business, and I always make sure to read them in case I set my expectations too high (like I did for the eggs benedict from that diner up north).

However, while most reviews do reflect a genuine experience and are useful to would-be customers, others can be exaggerated or even outright falsified.

One such encounter one of our team members had was when searching for a private firearms trainer. Her online search had taken her to a trainer she liked. However, the comments on Yelp for the trainer were horrible.

Before she ran the other way, she saw comments from the trainer that simply said, “This person is not a verified client of [Company Name].” Apparently, he made a tv news appearance advocating for a specific gun right, and people from all over the globe made negative comments.

The fact that they weren’t his clients made her totally disregard their comments, because those reviews weren’t based on his professional performance. Guess who she hired?

Sites that allow anyone to review an unlimited number of businesses naturally risk exploitation. Such review sites make it possible to communicate quick, personal experiences about any business out there, and that also means an easy dig from a disgruntled customer to the place that hurts a company most.

It is up to the business to stay vigilant about what is being said out there and seek out ratings and review platforms that verify customers.

Since customers rely on sites like Yelp, businesses need to maintain their profile in the same way they would maintain their storefront. Just as they would fix the broken lighting in their lobby, they need to acknowledge any unreliable reviews a cranky customer may write about them. By having a human presence on these sites, businesses can breed a sense of integrity and accountability that others will pick up on.

If those scathing and seemingly random reviews had been acknowledged by the supposed perpetrators, I would have had an easier time overlooking the more exaggerated claims, just like my team member did.

By responding, the business provides context for the incident, but more importantly, it shows that they care.

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Real Estate Big Data

Global market panic over Chinese real estate bubble subsides slightly

(REAL ESTATE) Chinese real estate bubble fears shook markets last week, but Evergrande made a big move today to temper the panic.

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chinese real estate

Last week, stock markets internationally plunged due to fears of a real estate bubble in China as their largest real estate developer, Evergrande struggled to make their interest payments on their outstanding bank loans as well as their bonds.

Analysts pointed to the interconnected nature of markets, reminding people that when the housing market crashed in the U.S. back in 2008, all global markets were impacted.

We asserted that the panic was overblown given that Evergrande has a tremendous amount of physical assets ($340 billion to be more precise), and that a restructure was possible which could put them back on track (rather than crumble – which was what markets seemed to imagine last week).

There has been a lot of speculation that the CCP (Chinese Communist Party) would begin pressuring state-owned businesses to prop up the developer.

Today, Evergrande’s stock is actually up as they have raised $1.5 billion in cash to meet their financial obligations.

How did they accomplish this? By selling their 20% stake in Shengjing Bank to the state-owned Shenyang Shengjing Finance Investment Group.

The money will only be applicable to their outstanding interest payments that are past due, and the Chinese government has not made any statement to the effect that they applied pressure or intervened.

The government has been pouring cash into the financial system to assuage fears, adding $15.5 billion to keep liquidity moving.

In a statement this week, the People’s Bank of China said they would “maintain the healthy development of the real estate market and safeguard the legitimate rights and interests of housing consumers.” The statement did not specifically reference Evergrande.

It is important that real estate practitioners keep their eye on this story as it has stoked consumers’ fears, especially when people don’t read beyond a headline.

There won’t be a pop quiz on how much cash Evergrande has on hand, but consumers may mention the Chinese real estate bubble elbowing markets here as a factor in their decision making. Understanding the bird’s eye view of what is going on will help Realtors better address the topic while in the field.

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