SOTM 63: Experts Bullish on Real Estate, iBuyers to Expand in 2021

Aaron: Real Estate Rockstars. This is Aaron Amuchastegui and welcome back to our State of the Market. Today is December 9th. There is lots of real estate news that I’ve gone through, and handpicked that I’m going to review and talk to you guys about today. A lot of things going on with the election and Biden and how we think that’s going to affect real estate, different technology and startups that are out there again. That was a lot of the news a year ago. Then, for the past nine months, it’s been COVID, COVID, COVID.

Well, now we can actually start looking again at different software getting released, different pivots, and also several articles that say 2020 was a record year in real estate, which again, most of you guys have heard that, and most of you know, although it hasn’t felt like a record year for everyone.

I’m going to share my screen. If you’re watching this on YouTube, you’re going to see some of the articles and if you’re not, no problem, I’m going to talk them through. This will be just a quick, easy episode to get caught up on your news. Here we go. First article says, “President-elect, Biden chooses rep Marcia Fudge to lead HUD. Fudge whose district includes parts of Cleveland and Akron, Ohio lobbied to become the Secretary of the US Department of Agriculture.” According to Politicos, “As President-elect, Joe Biden is reportedly choosing Congresswoman Marcia Fudge to lead the US Department of Housing and Urban Development”.

She’s from Cleveland that she currently serves on the House Committee, the House Committee on Agriculture, and House Committee on Education Labor. She serves on the House Committee on Civil Rights and Human Services, and she received reports from other Ohio senators. She’s a talented lawyer, successful mayor. She’ll be tasked with implementing key aspects of his campaign promises for affordable housing. That’s something I talked about a few weeks ago of what to look for as they’ve promised that they’re going to invest into affordable housing, which includes an investment of 640 billion in housing over the next 10 years.

As far as trying to figure out where that might go or how that might work, I think that is what we’re going to see next. But her being from Ohio, I could see a lot of that going heavy into the cities, up into the Northeast, but also when they do these funding programs, a lot of is spread out throughout the US so if you want to do some extra research, I would try to see what they had been doing in Ohio over the last couple of years with affordable housing. That probably gives us a little bit of a hint of what could be to come. That was an Inman article, just came out today.

Our next article says, “The ‘Biden Bump’: How real estate may benefit from a Biden presidency and how it may not.” This is from ABC News, came out today. It says, “Following the 2020 presidential election has been a noticeable uptick of real estate activity in New York City and other big cities.” All you guys know that in New York, in San Francisco, from what we’ve been talking about, the market has not been improving there. That’s where vacancies have gone down. Prices have gone down.

It’s been going great, almost everywhere else that isn’t in the big cities, but according to data from Serhant, “Since September or since November, the number of new deals in Manhattan increased six percent from the same period last year. That is the first promising sign of renewed confidence in the city. There are other factors that brokers and agents are thinking about when considering the impact of Joe Biden’s presidency on the US real estate market”.

“After a difficult few months, those working in real estate are anxious to see how he’s going to handle tax policy and federal funding, whether or not you support the last administration. It was not a beacon of stability for just about anything”, is what this agent says, that, “There was a revolving door of secretaries and appointees and nothing was stable. There was a tax bill that was floated halfway through the presidency and didn’t go anywhere.” They’re saying, “Such sentiments now help spell the end of the fear trade, helps buyers feel more secure”.

That’ll part of the article was saying with Biden now, there was a lot of unknowns. There was a lot of– It was going one way one month, one month, another. They believe that with Biden getting elected, part of why the real estate market is bouncing out in New York and some of those other places is it’s going to feel more stable. It says, “How Biden could help both buyers and renters? Biden is likely to remove the salt cap limitations on itemized deduction for home mortgage interest in state and local taxes”.

When President Trump was elected, he had a cap on what you could deduct as far as mortgage interest or property taxes. That affected people, especially in places like California. People in California had to end up paying more taxes under President Trump, because there was a tax on not being able to deduct your state income tax, your mortgage interest, or state property tax. That was enacted under President Trump, that’s going to be rolled back and especially affect big cities throughout the US. That’s an interesting thing.

Also, again, “Affordable housing. In his plan, Biden offers a hundred billion to the affordable housing fund to expand low-income housing. These funds will be directed toward communities that are suffering from an affordable crisis and are willing to implement new zoning laws to encourage more affordable housing.” Did he see that key? He said, “We’re going to give them to places that are willing to implement new zoning laws, so to encourage more affordable housing.” That could mean more properties on the same lot, that could mean allowing smaller properties, or that could be allowing smaller lots in different areas.

It says, “The only problem with this is it’s cost-prohibitive in big cities to the land prices, construction prices, and property maintenance, you would not be able to fix zoning laws to create affordable housing.” What that part of the plan is saying is that the affordable housing will not be in the big cities like New York. It’s going to help in the outskirts where there is vacant land, and maybe they have that growth yet. They still have the potential to change some of those zoning laws. Lots of good articles. This article is huge. I can talk about that the whole time. That’s a good one from ABC News, talking about The Biden Bump, what helps and what doesn’t in the real estate market. Go check that one out.

Next article. This one was from HousingWire. It says, “Knock launches new sale–leaseback solution.” I think we’ve talked about this a couple of times before, but, “Real estate technology company Knock has announced a launch of Knock Nest, a standalone sale-leaseback solution allows homeowners to access the cash they built up in their home while continuing to live in it, so they can request a no-obligation cash offer where their home, and then they can rent it afterward.” Knock will purchase the home and rent it back to the former owners while living in the home, they pay rent. That goes into all the different things.

Now, this isn’t too new. American Homes 4 Rent, they did a little bit of this when it started. There was another group. I think it was called Waypoint out of the Bay Area back in 2009, 2010, that was their whole business model. They would buy houses in foreclosure, and they would rent them back to the people that they foreclosed on. There’s actually– I have a really crazy story in this just this week. Seven years ago we bought a house from a lady in a short sale. We rented it back to her, and we rented it back to her with the plan that someday she was going to be able to buy it back from us.

Seven years later, this year, it just closed yesterday, we actually had a house so that she was able to now get approved on loan and buy it back from us. It was a total miracle and exciting thing that happened out there. Again, she was struggling. She couldn’t make her payments anymore. We bought it from her in a short sale. We rented it to her for less than what her mortgage was. We did that for seven years. At the end of the day. Now she bought it back at market rate.

We ended up– three years, we weren’t making any money on the rent because the rent was actually lower than the carry cost, the way that it was set up. Now that she bought it back at market rate, it’s been a good long-term investment for us, but even cooler. She got to stay in her home that was hers, and now she owns it again. Knock is trying that solution too, Waypoint did it a long time ago. There’ll be a lot of more versions of that, I think, coming up.

Next it says. Inman articles says, “Offerpad expands full suite of services to Denver and Nashville. Announced Wednesday at Denver and Nashville launches the first new markets for the company since it went to Alabama. The real estate technology and services from Offerpad bring its full stable real estate solutions to Denver national markets in 2021. The first two new markets since expanded Birmingham, Alabama in early 2020.” Offerpad out there, they provide quick competitive cash offers. They expanded right before COVID hit. When COVID hit all of those instant cash offer, iBuyer companies, they all shut down right away because the market was so impossible. It was just impossible to predict what was going to be happening out there.

It’s actually good news for the real estate market stability that one of these iBuyers is now starting to expand again. Next is an article from HousingWire came out December 7th. It says, “Fannie Mae reports housing market confidence drop. The first drop in three months. Following three months of increases, Fannie Mae’s Home Purchase Sentiment Index, a composite index designed to track the housing market and consumer confidence to seller buy a home fell 1.7 points in November.” It fell. It’s not a huge percentage but it was the first time in a few months that people are actually less excited about buying or selling.

It says, “Points to consumer wariness around COVID-19 is the reason for the sudden decline in the housing market.” We have seen that the last couple of weeks when it comes to COVID and statistics, it’s not great news out there in places. Places are re-shutting down. People stayed home for Thanksgiving instead of seeing family. People are deciding to not go hang out with their family on Christmas because of what’s going on. It is not a surprise that that would impact consumers’ excitement for buying or selling.

Purchase comment that has recovered more for homeowners than for renters, in parts because homeowners have been less likely than renters to have had their jobs and finances impacted by the pandemic. As another thing that we talked about a few months ago is that K-shaped recovery. People in finance jobs very low unemployment, those are the guys that are owning houses.

People with good stable jobs are owning houses. People that are in the service industry tend to be the ones that rent houses. It says, “The people that are struggling the most are also the renters out there”.

It’s been an interesting case-shaped recovery and it’s expanded that gap too, because there’s really low interest rates right now for people to refinance, but the people that are able to do that are the people that are doing great and they’re still employed and everything looks great. The people that are struggling are not able to refinance and take advantage of those lower rates.

Next article from Inman says, “Ivanka and Jared Kushner buy $30 million lot on billionaires bunker. Miami’s elite private Indian Creek Island is heavily guarded and has been home to celebrities including singer Julio Iglesias and model Adriana Lima. As they prepare for life after the White House, Ivanka Trump and Jared Kushner bought a $31.8 million lot of land on Miami’s elite private island, Indian Creek Island, or Billionaires Bunker, as it’s known”.

That’s pretty crazy. A private island that’s heavily secure, $31 million for a piece of land. Now it’s a beautiful lot. It’s not giant, though. The house next door takes up the whole lot. It is right on the water. It seems like they are probably obviously doing that for the security. It’s a guarded gated community, just Northwest of Miami, 41 luxury residence on 300 acre island, as well as 24/7 armed Marine patrols in the island surrounding the waters around the Island.

It also includes an 18 hole golf course, all sorts of different stuff. Really cool property. Good for them. That is a very big change, a big, big purchase. I didn’t even know that a property like that existed out in Miami. As you see the picture of this, you see these open lots on a golf course, all this green right next to busy Miami where there’s– I’m sure there’s other giant houses. The left side of this picture shows all these houses on the water that looked tiny compared to the giant houses out on this new island. I think that those houses that look tiny are also big houses, just shows you how big they really are where you have a $30 million lot.

Interesting stuff out there. When you go to Bloomberg, there’s a lot of articles on Bloomberg this week. Prashant Gopel is one of the big real estate journalists out there, and everything about his, so I said at the beginning, is this the real, say, market’s booming? There’s a million-dollar home buying source with the US rich going on a shopping bench. It also says, “Toll Brothers homes or soar in rally for luxury sale.” Toll Brothers is a production home builder that sells high-end production communities. They still build mass production but they build really big high-end luxury houses. It says the mortgage industry roars to record year courtesy of the Fed.

All the articles that I could find this week from Bloomberg were very bullish on how strong the real estate market has been in the US. None of that’s really a surprise, except it is interesting to see that million-dollar home buying soars with the rich on it on shopping spree was his highlight. Wealthy people are buying bigger houses, more people are buying million-dollar-plus houses than ever before.

The next article, Inman, a little technology article. AppFolio to pay $4.25 million in settlement to the Federal Trade Commission.” I didn’t even know there was a lawsuit on this. “The government agency alleged that the company failed to properly verify the accuracy of tenant criminal and eviction history before including such information in the reports.” That’s really interesting. “AppFolio, California-based property management and screening company, agreed to pay 4.25 million”.

“The FTC filed a complaint earlier this year claimed the company violated the Fair Credit Reporting Act by failing to ensure that the third-party tenant information included was fully accurate. Eviction and non-conviction criminal records older than seven years may have also been included, which would have been a violation of the act. That’s pretty wild. People are doing credit checks and screen checks through AppFolio. It’s saying maybe AppFolio, somebody had a felony eight years ago, they aren’t allowed to have that come through on the application on the background check, but they were still providing that to landlords.

Or something like that. Or somebody having just non-miss payments or something else that says they weren’t really verifying that they were fully accurate. Some tenants must’ve be getting declined for stuff that came up on their past record that was inaccurate.

The next we’ve got, “California mansion could smash records as priciest auction sale.” We were just talking about how the high and strong the top of the market is. “After two years on the market, $165 million mansions”, they say, “They hit the auction block and could break records as the most expensive auction sale to date. The known as the Villa Firenze in Beverly Hills sits 28,000 square feet across nine acres.” I should have had Paul Morris on here to talk. You guys have heard me talk to Paul. He’s an agent in Beverly Hills, runs a huge KW office out there and he’s been the co-host several times on here. He would be able to tell me all sorts of stuff about that. Maybe I’ll get him on next week.

The house is listed at 165 million in 2018, but took it to concierge auctions after being unable to find a buyer. The auction will take place later this month. The mansion was built in 1998 after nine years of construction.” Crazy to think about $165 million mansion taking that to auction, definitely going to be the priciest auction sale ever. Not the priciest home sale ever, but the priciest time where they did the highest bid and get it in an open sale.

All right, last couple of articles on here. HousingWire says, “Forbearance rate holds, but exits are slowing.” I wanted to share this because it showed, again, the difference of the recoveries in what’s happening.

They say, “5.54% of US households are in forbearance right now.” That seems like a lower number than we were hearing before because we heard such a higher number were in some form of default. That means default plus forbearance. 5.54% have worked out a deal with their lender where they don’t have to pay their mortgage payments right now, but they’re not in default, they’re not getting foreclosed on, they’re going to get a chance to fix that. Says, “Fannie Mae and Freddie Mac loans in forbearance gained for the first time in 25 weeks. However, they fell once again last week”.

“Fannie Mae and Freddie Mac is only 3.34% of loans. A two basis point improvement. The GSEs forbearance rate overall has improved immensely now down more than 50% since its peak since May.” It’s saying that they’re a 3.34% of Fannie Mae and Freddie Mac loans and forbearance. Those are higher. If you’re getting a jumbo loan, it’s going to be one of those. Those are higher end properties. Not as many of those in forbearance anymore. The highest they had in forbearance was back in May and now it’s fallen since then. The people that are really high-end of the market, forbearance is coming down.

“Ginnie Mae loans on the other hand, which includes loans backed by the FHA offset last week’s decline by rising six basis points to 7.89%. So far, FHA is active forbearance volume have seen just half of the GSEs level of improvement.” It’s saying 7.89% of the FHA type loans are the ones in forbearance. There’s definitely more FHA, Ginnie Mae loans, that are people are behind not making their payments than in the Fannie Mae Freddie Mac. It said, “Portfolio loans and private label security, as well as the positive services also experienced basis point gains, 8.7 and 5.48 respectfully”.

The percentage of loans in forbearance for independent mortgage banks is now at 6%. A lot of part reason forbearance right now, there are more FHA loans in forbearance than anything else. Not too surprising when we talk about our idea of two recoveries and the million-dollar Fannie Mae, Freddie Mac loans. Those are recovering and coming out of forbearance quicker because a lot of those businesses have recovered by now.

Last article I want to put on here, which is really interesting. It says, “Mr. Cooper settles a $90 million lawsuit over illegal foreclosures.” The article just came out, they just settled this lawsuit. They’re going to have to pay $90 million and a civil penalty of more than six and a half million dollars to settle the lawsuit. They’re saying, “They violate the rights of 115,000 customers. Some of them, they illegally foreclosed on”.

They give people a foreclosure notice and then they do something wrong in that process and they end up foreclosing on them anyway, it’s one of the things that happened. It says, “Mr. Cooper, then known as Nationstar, bought thousands of mortgages through bulk purchases. It failed to identify the loans with existing modifications.” They bought a bunch of loans from somebody and they didn’t look at the modifications. They filed foreclosures on people. It had all sorts of things that damage their finance and their credit reported bad payments, things like that. That lawsuit they’re just now settling, but again, it says $90 million.

The interesting thing was they’re alleging that it happened between 2012 and 2016. They’re saying back between 2012 and 2016, that’s when that happened. The reason I thought this article was interesting is two years ago, we bought a house in the courthouse steps and the previous owner, we bought the house, we got the deed to it. The previous owners lender was Mr. Cooper. They sued Nationstar and Mr. Cooper. Just six months ago, they were given the property back. They found that it was an illegal foreclosure.

We’re still waiting to get our money back from it, but I actually, personally, I was on the other end of this and saw what as an investor, the downside of when a lender does the wrong thing and forecloses when they aren’t supposed to. Really interesting way to figure that out. When I saw that come out, I could not believe it since we are in a similar case right now.

Guys, I hope you liked that show. That was a quick 30 minutes to go through the news of the week, the State of the Market news of the week, lots of good stuff in there. How will Biden affect your real estate deals? There’s some homework to go in and check out. Who that new HUD secretary is? We’re going to do some of that homework for you as well. Again, the tale of the Toll recovery is continuing to go out there, but really strong numbers at the end of the year. Big high-end houses selling, consumer confidence going down just a little bit ,but confidence in New York City and in some places like that coming back up.

When I interviewed Ryan Barone in episode 939, he talked about he was excited about New York, he had a lot of faith in New York. He believed it was going to come and bounce back. That article itself said there was a big bounce this month. Interesting news, hopefully, you guys enjoyed it. That is the end of today’s State of the Market. Thanks for joining me.