NAR Study: International Buyers Are Back

 By Kerry Smith

In NAR’s annual report, 1 in 4 (24%) international buyers chose Florida Nationwide, they spent $5.9B, up 8.5%, even as single-family home sales dropped 7.9%.

WASHINGTON – Foreign buyers purchased $59 billion worth of U.S. existing homes over a one-year period (April 2021 through March 2022) – an 8.5% increase from the previous 12-month period and the end of a pandemic-led, three-year skid.

The 98,600 existing homes sold – the lowest since NAR tracking began in 2009 – were down 7.9% year-to-year.

Overall, however, Florida led the nation in welcoming foreign investment as one in four international buyers (24%) selected property in the Sunshine State.

Top international buyer destinations

1. Florida (24%)
2. California (11%)
3. Texas (8%)
4. Arizona (7%)
5. New York (4%)
6. North Carolina (4%)

Florida ranking among residents of foreign countries

• Canada: Florida was the No. 1 choice for 45% of Canadians
• China: Florida No. 4 for 7%
• Brazil: Florida No. 1 for 55%
• Mexico: Florida No. 2 for 12%
• Colombia: Florida No. 1 for 60%

Region of origin for Florida’s top foreign buyers

• Latin America/Caribbean: 39%
• North America: 25%
• Europe: 12%
• Asia/Oceania: 4%
• Africa: 0%
• Region not identified 20%

“For the second year in a row, restrictions and general caution tied to international travel during the pandemic slowed home buying by wealthier foreign buyers,” says NAR Chief Economist Lawrence Yun. “Even so, domestic home buying demand was exceptional and, therefore, boosted home sales nationally.”

NAR’s 2022 Profile of International Transactions in U.S. Residential Real Estate surveyed members about transactions with international clients who purchased and sold U.S. residential property from April 2021 through March 2022.

Foreign buyers who resided in the U.S. as recent immigrants or holding visas that allowed them to live in the U.S. purchased $34.1 billion worth of U.S. existing homes, a 5.2% increase from the prior year and 58% of the total dollar volume of purchases.

Foreign buyers who lived abroad purchased $24.9 billion worth of existing homes, up 13.2% from the 12 months prior and for 42% of the dollar volume. International buyers accounted for 2.6% of the $2.3 trillion in existing-home sales during the time period.

Typical foreign buyer home

The average ($598,200) and median ($366,100) existing-home sales prices among international buyers were the highest ever recorded by NAR – and 17.7% and 4.1% higher, respectively, than the previous year. The increase in foreign buyer prices partly reflects the increase in U.S. home prices, as the monthly average existing-home sales price rose to $374,300, up 10% from the prior period.

At just over $1 million, Chinese buyers had the highest average purchase price, and nearly a third – 31% – purchased property in California.

“Affordability challenges along with the inability to find the right property were the top reasons given for prospective international buyers who showed interest but ultimately did not purchase a home in the United States,” says Yun.

China and Canada remained first and second in U.S. residential sales dollar volume at $6.1 billion and $5.5 billion, respectively, continuing a trend going back to 2013. India ($3.6 billion), Mexico ($2.9 billion), and Brazil ($1.6 billion) rounded out the top five.

For the 14th straight year, Florida remained the top destination for foreign buyers.

All-cash sales accounted for 44% of international buyer transactions, nearly twice the rate (24%) of all existing-home buyers. Non-resident foreign buyers (60%) were twice as likely to make an all-cash purchase compared to resident foreign buyers (30%). Nearly 7 out of 10 Canadian buyers (69%) made all-cash purchases, the highest share among foreign buyers. Asian Indian buyers were the least likely to pay all-cash, at just 9%. Almost 6 out of 10 Chinese buyers (58%) and a quarter of Mexican (27%) and Brazilian buyers (26%) made all-cash purchases.

“Due to rising interest rates, overall home sales will decline in the U.S. this year. Foreign buyers, however, are likely to step up purchases, as those making all-cash offers will be immune from changes in interest rates,” Yun says. “In addition, international flights have increased in recent months with the lifting of pandemic-related travel restrictions.”

Type of homes purchased

• 44% of foreign buyers purchased their property for use as a vacation home, rental property or both.
• 64% purchased detached single-family homes and townhouses.
• 46% bought a home in the suburbs while 29% bought a home in an urban area, numbers which have held steady over the last five years.
• 5% bought property in a resort area, down from 17% in 2012

NAR “collaborates with groups across the country to help our members unlock and better understand the opportunities in U.S. real estate for foreign buyers, maximizing the global business potential in our local markets,” says Katie Johnson, NAR’s general counsel and chief member experience officer. The network has grown to include more than 100 real estate associations across 76 countries.”

© 2022 Florida Realtors®

Housing Shortage Isn’t Just a Coastal Crisis

 The U.S. needs about 3.8 million housing units to keep up with household growth, a crisis with multiple causes, some of which go back to the Great Recession.

NEW YORK – The U.S. housing shortage started as a crisis along both coasts but has evolved into a national problem that ultimately threatens Americans’ quality of life, the national economy and even the current housing construction model.

According to Freddie Mac, the country is short 3.8 million housing units in order for it to keep up with household expansion. Up For Growth, a national cross-sector network formed to seek solutions to housing affordability issues, says the housing deficit doubled from 2012 to 2019, reducing supply in 47 states and the District of Columbia.

As a result, home prices and rents have skyrocketed, including in areas known for housing affordability, due to spiking demand fueled by the pandemic and the ability for some workers to seek out affordable housing thanks to a new-found ability to work from home.

Why is there a problem? Forces affecting affordability today include a labor shortage that can be traced back to the Great Recession, more expensive building materials, rising costs for land and tightened lending standards for builders.

“Over the last four or five years, every place I go, they cite underbuilding,” remarks National Association of Home Builders Chief Economist Robert Dietz. He says communities losing residents are the exception, while elsewhere, “it was just a matter of degree and scale.”

The cost of housing in the highest-paying, most productive U.S. regions discourages people from relocating – if you live there and own a home, it makes sense to stay; if you wish to move where the jobs are, the cost of housing makes it difficult.

Meanwhile, higher-income households are jockeying for limited housing inventory.

Source: New York Times (07/14/22) Badger, Emily; Washington, Eve

© Copyright 2022 INFORMATION INC., Bethesda, MD (301) 215-4688

New Mortgage Rules Could Make Homes Less Affordable

 Published in The Boston Herald

It’s a tough time to be on the hunt for a home. Prices have reached record levels. Mortgage rates are rising.

Less visibly, new rules from Fannie Mae and Freddie Mac are also making it more difficult for people to buy condominiums, which are often how first-time buyers enter the real estate market.

The federally chartered mortgage companies are trying to verify the physical and financial soundness of condo buildings before backing loans on the units. But condo owners and the associations they hire to manage their buildings are finding it difficult to comply with the rules. Many are opting not to participate in lending backed by Fannie or Freddie.

That’s making mortgages for condos harder to come by — and putting homeownership out of reach for millions of people.

Demand for condos continues to rise. The supply of condos for sale is declining faster than that for single-family homes.

Like all commercial and residential buildings, condos need to be safe and structurally sound. That’s why the law currently requires thorough building codes, inspection standards, maintenance schedules, construction licensure, federal housing regulations and more.

Fannie and Freddie have a stake in the structural and financial soundness of condo buildings, of course. The companies, and their investors, ultimately receive the monthly mortgage payments each condo owner makes. A decrepit building, or one that doesn’t have enough money to maintain itself, is a risk to the occupants, to that stream of future payments, and to taxpayers everywhere.

But the new rules from Fannie and Freddie are creating problems for the condo market. If they determine that a condo building is a potential physical or financial risk, then they won’t guarantee mortgages on the units in that building.

Condo buildings must undertake and document repairs to the satisfaction of Fannie and Freddie in order to get off this “risk” list. To prove they are up to date, condo associations are being asked by lenders to complete vague, extensive questionnaires detailing building maintenance and inspection records as well as information on financial reserves. Answering those questions typically requires the assistance of legal counsel — and that can be very expensive.

Some condo associations are refusing to sign off on documents attesting to the safety and financial soundness of their buildings because they’re unable to provide the information Fannie and Freddie are asking for.

The upshot is that many owners can’t sell, and buyers can’t secure financing. Lenders won’t originate loans if they can’t sell them to Fannie and Freddie.

Lower- and middle-income Americans will pay the heaviest price for these rules. Condo purchases are often how they begin the process of saving and building generational wealth. Instead, they may watch as wealthier, all-cash buyers and investors snap up properties they might otherwise be able to purchase.

Sellers, for their part, have fewer potential buyers. That’s causing their properties to sit on the market longer — and may yield lower sales prices. Some may not be able to find buyers at all.

Squeezing the housing balloon like this also puts upward pressure on the price of single-family homes as potential buyers turn away from condos, unable to secure financing.

Finally, condo owners may find that this lender reluctance limits their ability to access the equity in their homes. Such loans can be critical when a special assessment for, say, a new roof comes along.

In this way, the new rules from Fannie and Freddie could actually undermine condo buildings’ efforts to stay up to date on maintenance.

Since announcing the new rules, Fannie Mae has acknowledged their unintended negative consequences. That’s a start. Next, the mortgage giants must revise those rules to maintain the safety owners need without locking millions of people out of the housing market.

---

Kaki Lybbert is 2022 Vice President of Advocacy, National Association of REALTORS®, and a REALTOR® in North Texas.

1 in 10 Orlando Homes Sell to Investment Firms

 By Trevor Fraser

ORLANDO, Fla. – The top 10 home-buying investors of 2021 in metro Orlando were tied to investment firms in the single-family rental house business, leading at least one expert to worry about the pressure such deals are putting on both the housing and rental markets.

An Orlando Sentinel review of data from the property appraisers for Orange, Osceola and Seminole counties showed the growing trend of existing homes – as opposed to new construction – bought by single-family rental companies. It happened during a year of bidding wars that drove median prices through the roof and locked out individuals and families seeking to buy new homes.

“Why now?” asked Elora Raymond, an urban planning professor at Georgia Tech who recently testified before Congress about the issue. “Why for 100 years did we have big financial firms with no interest in single-family rentals until now?”

Companies tied to Progress Residential, a subsidiary of Arizona-based private equity firm Pretium Partners, purchased the most properties across the three counties with 740.

The top 10 included companies from California to New York tied to Main Street Renewal, Invitation Homes, FirstKey Homes, My Community Homes, Beacon Ridge Capital and Tricon Residential. Of the remaining three, Offerpad and Opendoor are online institutional buyers, and Home Partners of America, offers a lease-to own program.

Single-family rental purchases were also concentrated in predominantly Black neighborhoods. Of the 38 ZIP codes in Orange County where single-family rental companies bought, the four ZIP codes with a Black population above 40% accounted for a quarter of all purchases.

The top 10 investors bought 3,496 homes. Known single-family rental companies accounted for 3,330 sales – 12% – of the total 28,295 homes sold to investors.

Raymond was a featured speaker at a congressional subcommittee hearing in June titled, “Where Have All the Houses Gone?” A survey by the committee showed the top five U.S. single-family rental companies have increased their holdings by 27% on average since 2018, with FirstKey and Progress growing by more than 60% over that time.

Raymond said she is concerned about the way that these purchases affect the market overall. Investors are paying higher prices for homes, usually with cash, which beat out the offers for many mortgage buyers.

In metro Orlando, the median price investors paid was $310,000 in 2021, the same as the median for buyers overall. The range of prices was largely tied to where homes were bought. A proxy company for the Amherst Group, which owns Main Street Renewal, snagged a home in Apopka for $215,000, while a company connected to Progress bought one south of Windermere for $616,000.

Companies bought many of their homes in bulk from other institutional buyers such as Zillow. Another finding of the congressional committee was that homes bought by institutional investors tend to get sold to other large companies, keeping them off the market for the average buyer and shrinking the inventory, which in turn increases prices.

Raymond says that selling to other investors makes sense when you’re selling thousands of properties at a time. “You’re not going to hire 600 lawyers and 600 brokers to find 600 buyers for 600 homes,” she said.

Representatives for the top investors did not return requests for comment.

David Howard, executive director of the National Rental Home Council which represents rental homeowners big and small, says these companies are responding to growing demand for rental properties. The majority of them rose out of the Great Recession of 2007-2008, when banks and investment firms found themselves with millions of foreclosed homes in a market with few buyers. Some companies began renting the properties while they waited for buyers to return.

“What they found is that there was more money in renting over the long term,” Howard said.

Interest in Central Florida shouldn’t come as a surprise, Howard said, given its growing population and major employers such as Disney World and other tourism businesses. “Markets like Orlando really led the country in terms of where this demand for single-family rental housing was the greatest,” he said.

Howard said rental homes give people a chance to “test drive neighborhoods,” looking for the best schools and commutes. They also give those without the means to purchase a home more space than the typical apartment.

“Just because someone can’t afford a 20% down payment to buy a home doesn’t mean that they should be excluded from the single-family home lifestyle,” Howard said.

Howard also points out that the institutional single-family rental market only makes up 2% to 3% of the housing inventory nationally, and that the vast majority of rentals are owned by individuals. And Howard notes that homeownership in Orlando has increased over the past five years, the same period over which the major institutional investors have been active.

Homeownership in Orlando has increased since 2016, from 55.6% to 57.6% in 2020, though that was after taking a sharp nosedive during the Great Recession. Homeownership in Orlando has not returned to its 2010 peak of 62%.

Raymond said she suspects the companies aren’t only using these properties for rental income but also to increase the value of their portfolios. So driving up prices by taking homes off the sales market wouldn’t be an unintended byproduct of the process, but the point, she said.

“These guys didn’t start as landlords,” Raymond said. “They started as financial firms. Think about how financial firms make money.”

But Howard says that his conversations with owners of these companies leads him to believe they see their money in rent.

“They’re in the business of renting homes,” he said. “They are not in the business of buying homes, sitting on them and waiting for them to appreciate.”

Howard says that many of the large rental companies are moving away from buying existing inventory and into building their own homes for rent, such as the Crestridge community in Leesburg, built by American Homes 4 Rent.

“It’s much more difficult to purchase housing [than build], whether you’re an individual or a company,” Howard said. “There’s as much of a supply crisis for rental housing as there is for owner-occupied housing.”

Raymond, however, remains concerned about what this might mean for the future of homeownership.

“If the market isn’t letting homeowners win, what are the tools in America to help?” Raymond asked.

© 2022 Orlando Sentinel. Distributed by Tribune Content Agency, LLC.

Florida Condos Start to See Impact of Surfside Collapse

By Kimberly Miller

The tragedy rattled a Florida insurance industry that was already struggling. One Palm Beach condo complex expected a 25% increase – but coverage rose by 82%.

WEST PALM BEACH, Fla. – The specter of Champlain Towers South came in an email alert this month for residents of a West Palm Beach waterside condominium. Insurance on the 12-story building across from the Lake Worth Lagoon increased 82%, requiring a special meeting to hike the budget and jack up dues. It was a blow for the association, which had planned for just a 25% rate jump on top of a 25% increase the previous year.

“Everyone is shocked,” said Mary McSwain, who bought her one-bedroom unit in the 51-year-old Portofino South Condominium in January. “I’m just getting near retirement and I thought this was going to be my dream place but I’m getting priced out.”

McSwain, 67, said her dues are going from $914 a month to $1,347 – a monetary burden that means she will work more and longer instead of scaling back her job as an attorney.

While it’s impossible to tease out exactly how much of the insurance increase was a reaction to the collapse in Surfside, Portofino property manager Robert Gardner said “of course” some of it is a consequence of the tragedy that killed 98 people in the early morning darkness of June 24, 2021.

Insurers in general statewide were already on the ropes before the tower fell, the collapse was a knock-down punch.

Gardner had just three companies willing to give him a quote after the association got notices its insurance would not be renewed under the same terms. The reasons for denials ran the gamut – the building’s too old, it has cast iron pipes, there’s no sprinkler system, the roof is 21 years old.

“It goes on and on,” Gardner said. “It’s just nuts right now.”

And it’s likely to get more expensive for owners under the new condo law approved during a special legislative session. The new law took effect when Gov. Ron DeSantis signed it May 26, but most safety provisions do not kick in until late 2024. It requires maintenance accountability measures on older condos three stories or higher, such as engineering inspections and dedicated reserves to pay for fixes.

For the 140-unit Portofino South, the insurance pinch is first.

And it comes as the Portofino owners are looking at another hit, too. Unrelated to the Champlain Towers collapse, Portofino also must by law install a sprinkler system by Jan. 1, 2024 – an expense that will cost at least $7 million.

The new, post-Champlain law requires a structural integrity reserve study to determine how much money is needed for future major repairs to be completed by Dec. 31, 2024. Following completion of the report, condo boards must reserve funds for projects identified in the report and cannot use those reserves for other purposes.

West Palm Beach attorney Michael Gelfand, who served on the Condominium Law and Policy Life Safety Advisory Task Force set up after the Surfside collapse, said there is a concern people will not be able to afford what is coming.

Years of lax state oversight, weak regulations, and volunteer condo boards reluctant to levy heavy dues on their friends and neighbors have allowed buildings to deteriorate, he said. Champlain Towers South had about $706,000 in its reserves as of January 2021, according to a review the year before by the company Association Reserves. But it needed more than $10 million for projected repairs.

“After decades, the real cost of housing will be recognized for those who actually own and occupy condominiums,” Gelfand said. “If people can’t afford it, they will have to move. That is not an easy thing to say, but that is what it comes down to.”

The end of some condominiums?

He suspects some condominiums will vote to sell out to developers in lieu of paying millions of dollars in assessments. The process, called condominium termination, isn’t new but may attract developers with plans to demolish buildings and replace them with new construction. With the real estate market still humming in South Florida, beachfront properties are in high demand.

An April Wall Street Journal article notes that a handful of Miami-area condos have already sold to developers.

“We are going to see the vultures come in, and in some situations, they will make an offer that can’t be refused,” Gelfand said.

With the insurance market in shambles, some condominiums have turned to the state-run Citizens Property Insurance Corp. for coverage. In Palm Beach County, the number of condominium associations covered by Citizens in buildings 40 years and older increased 64% (from 402 to 662) between April 2021 and May 2022. On buildings younger than 40 years, policies increased 70% (from 144 to 244) during the same time period.

Portofino South was able to find private insurance this year, and Gardner hopes the insurance legislation passed during the special session will help next year. “But I have no idea what’s going to happen,” he said.

Some Portofino residents are paying more for their individual unit insurance as well as the association increase. Vicky Ross, 79, was canceled from her private carrier earlier this month and had to enroll with Citizens, which included a $500 rate hike. In addition, her association dues will go up $433 a month.

Throughout Palm Beach County, the number of personal residential condominium policies written by Citizens increased 61% in buildings 40 years old and older between April 2021 and May 2022. In buildings younger than 40, it went up 43%.

“All I know is at the end of the month, I won’t have the little surplus I had before,” Ross said.

Portofino South condo owner Margaret Daley, 82, has been a full-time resident of the building for eight years but has been visiting it since it opened in 1971 when her parents bought a unit there. A former association vice president, Daley said the building has been well maintained, was just painted and recently completed a restoration project.

She’s had no concerns about its safety, even after the Surfside collapse. While she doesn’t like the higher costs, she’s not overly concerned.

Still, Portofino association President Gregory D’elia is nervous about how owners on fixed incomes will pay for the increases, and he’s angry with lawmakers for letting boards get away with putting off repairs for so many years. He’d like to install new elevators, but instead he has to budget for the sprinkler system, which was originally required to be completed by the end of 2019 but had its deadline extended to the end of next year.

“My frustration is the Legislature turned a blind eye to this,” he said. “Where were you all this time so that Champlain didn’t happen?”

The unknown is what scares others, including McSwain, who said for now she’ll dip into her savings to pay the extra costs.

“I just don’t know how many more increases or special assessments there can be,” she said. “A couple of people in our building are on fixed incomes and they said they just can’t absorb this.”

© Copyright 2022 Palm Beach Newspapers, Inc. Kimberly Miller is a veteran journalist for The Palm Beach Post, part of the USA Today Network of Florida.

Congress targets investors and asks a question: “Where have all the houses gone?”

 

U.S. House Focuses on Institutional Investors: A committee looked at the impact on first-time buyers and minorities – and the real estate industry – if a high percentage of traditional family homes become rentals.

WASHINGTON – Congress targets investors and asks a question: “Where have all the houses gone?”

The pace of single-family rental home purchases by hedge fund-backed investors has risen in recent years, according to data submitted by the companies to the U.S. House Financial Services Committee.

During a June 28 committee hearing on the own-to-rent industry, witnesses called for expanded protections for renters, more public housing, limits to local zoning rules that prevent new housing from being built, and other federal laws to help bridge generational wealth gaps.

In 2011, no single investor-owned over 1,000 U.S. homes. However, the five biggest investors owned a combined 280,637 as of October 2021, adding 76,325 homes to their portfolios between March 2018 and October 2021.

Q3 2021 institutional investor homes

• Invitation Homes – 83,512
• Progress Residential – 71,930
• American Homes for Rent – 56,077
• FirstKey Homes – 35,899
• Amherst Residential – 33,219

“These homes would likely have been bought by first-time home buyers, low- to middle-income buyers, or both,” said U.S. Rep. Al Green (D-Texas), chair of the Financial Services Subcommittee on Oversight and Investigations.

Meanwhile, a memo submitted to the committee indicated that home builders may turn to institutional investors to buy more of their product as more buyers get priced out of the market.

According to witness testimony before the committee, institutional investors target minority communities and prevent them from building generational wealth through homeownership.

According to Green noted, lower-income buyers are losing out to institutional investors that buy homes with cash. “This all has the troubling effect of displacing residents of color and leading to gentrification of these communities,” he said. He also called the companies “very poor landlords,” citing steep rent hikes and evictions, including during the COVID-19 pandemic.

Jenny Schuetz, a senior fellow at the nonpartisan Brookings Institute, said it’s a “long-term problem caused fundamentally by the fact that we’re not building enough homes.”

Source: Inman (06/30/22) Anderson, Taylor

© Copyright 2022 INFORMATION INC., Bethesda, MD (301) 215-4688