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The Housing Market

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Meghan Nalaboff

on 13 May 2014

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Transcript of The Housing Market

The Housing Market
Joey
Meghan
Jack
Conner
Teresa
The Housing Market
2007-Present

Effect on Buyers

Who is affected?
Past vs. Present
Effect on Sellers
The condition of the housing market has an influence on home valuations, real estate, mortgage rates, lending standards, home builders and their retail suppliers, along with hedge funds and other investments.
A buyer's market is one in which there are too many homes on the market for the number of buyers. Homes take longer to sell and prices fall.

Ultimately-the buyer has the advantage as there are more homes on the market and less people buying.
Its beneficial for the buyer but remember....
Sellers who are in a must-sell position may take little or no profit from the sale of their homes, or may even be forced to take a loss.

The homeowners who are most hurt by a buyer's market are those with little or no equity built into the home. If they are forced to sell, they may have to come to the closing table with cash to pay their mortgage off or allow the home to be repossessed by the lender.
When the economy is tight, everything is impacted. This can be noticed in the real estate market. What this creates is a good market for buyers with money who can qualify for mortgage loans. Properties are going like fast in some areas of the US as people who were given mortgages without qualifications have been forced to sell. These forced sales mean property is released at a much lower price than other properties. Indeed, a buyer's market.
Teresa
From 1997 to 2007, about 1.5 million households were formed on average each year in the United States.
Then the Great Recession hit, within three years, the rate fell to 500,000 per year.
This decline in house hold formation occurred even as the U.S. population was expanding at a rate of 2.7 million per year, only slightly below the rate of 2.9 million a year observed between 1997 and 2007.
A modest rebound has since followed during the economic recovery, with 1.1 million new households being created in 2011. *The economy, and especially, areas must be taken into consideration.*
Top 10 Most Affordable Housing Markets for 2014:
1) Chicago
2) Philadelphia
3) Orlando
4) Richmond, Va.
5) Dallas
6) Raleigh, N.C.
7) Baltimore
8) Houston
9) Tucson
10) Nashville
Best places to live in 2007:
1) Fargo, ND-MN
2) Columbia, MO
3) Sioux Falls, SD
4) Iowa City, IA
5) Bismarck, ND
6) Ames, IA
7)La Crosse, WI-MN
8) Cedar Rapids, IA
9) Rapid City, SD
10) Waterloo-Cedar Falls, IA
A sellers market is characterized by a shortage of goods available for sale meaning sellers have a lot of pricing power.
Location and its effect on home prices
http://www.coldwellbanker.com/imgs/cbnetftp/WorksVideos/ColdwellHousing.swf
Residential investment is expected to grow 10.3%

More Homeowners Are Likely to Return to Positive Equity

Mortgage Rates Are Expected to Rise

Foreclosure Activity Is Expected to Slow

Further Declines in Home Affordability Are Expected

2014 Housing Market

Deregulation
Mandated Loans
Low interest rates
Buying and selling above normal Multiples


Causes of the United States Housing Bubble in 2007

Demographics

Interest Rates

The Economy

Government Policies/Subsidies

Major Factors that drive the Real Estate Market

Housing Market and the Economy

Properties being Foreclosed From 2007-2012


Residential real estate provides housing for families, and often can be a great source of wealth for many of them.


Commercial real estate, which includes apartment buildings, create great space for jobs in retail, offices and manufacturing.


Ways that the Housing Market Helps with the Economy

Works Cited
Simmons, Ruth, and Jessica Silver-Greenberg. The Wall Street Journal. N.p., n.d. Web. 19 Apr. 2014. <http://online.wsj.com/news/articles/SB10001424052702304563104576361522020024248>.

N.p., n.d. Web. 1 May 2014. <http://www.investorwords.com/641/buyers_market.html>.

Buyers Market. N.p., n.d. Web. 1 May 2014. <http://www.investopedia.com/terms/b/buyersmarket.asp>.

Evans, Blanche. What is a Buyer's Market?. N.p., n.d. Web. 23 Apr. 2014.
<http://realtytimes.com/consumeradvice/buyersadvice1/item/20835-20000203_buyermrkt>.


Conner
Meghan
Joey
Everyone
• http://www.washingtonpost.com/blogs/where-we-live/wp/2014/01/14/higher-interest-rates-will-slow-housing-market-growth-in-2014/
• www.forbes.com/sites/mikepatton/2013/08/28/interest-rates-the-fed-and-the-housing-market-recovery/
http://www.businessweek.com/articles/2013-11-14/2014-outlook-new-mortgage-rules-reshape-the-market
Holt, Jeff. "A Summary of the Primary Causes of the Housing Bubble." The Journal of Business
Inquiry, 1 Jan. 2009. Web. 6 May 2014.
Davidoff, Steven M. "How a real estate giant was resurrected." International Herald Tribune 11
Oct. 2012. Business Insights: Essentials. Web. 6 May 2014.
Dunne, Timothy. "Household Formation And The Great Recession." Economic Commentary
2012.12 (2012): 1. MasterFILE Premier. Web. 6 May 2014.
"Small Metropolitan Areas with the Best Quality of Life, 2007." Business Rankings Annual.
Lynn M. Pearce. 2008 ed. Detroit: Gale, 2008. Business Insights: Essentials. Web. 6 May
2014.
"ZipRealty Ranks the 10 Most Affordable Housing Markets of 2014." PR Newswire 8 Apr. 2014.
Business Insights: Essentials. Web. 6 May 2014.
"Our Approach." Blackstone. N.p., 31 Mar. 2014. Web. 11 May 2014. <http://blackstone.com/businesses/aam/real-estate/our-approach>.
"Are "Wall Street Buyers" Like Blackstone Group Creating Another Housing Bubble?" Money Morning Only the News You Can Profit From. N.p., 4 Apr. 2013. Web. 11 May 2014. <http://moneymorning.com/2013/04/04/are-wall-street-buyers-like-blackstone-group-creating-another-housing-bubble/>.
Relation to Real Life

Question 2: How do the different types of markets affect your role in your company and as an individual?
Question 1: What do you like/dislike about your job?
Question 3: Which type of market is preferred to work in?
Most people would probably assume that my answer would be a sellers market. And yes this is true to an extent but believe it or not I like it when the market is what I like to call "neutral." In a buyers market the buyer knows they have an advantage and can easily be aggressive or pushy. They forget that we sill need to make a profit. In a sellers market buyers often become very defensive because they don't want to be taken advantage of.
Blackstone
is a global investment and advisory firm that created a platform called
Invitation Homes
in 2012. They saw an opportunity to make more money by renting foreclosed homes, with their strategy: "Buy it- Fix it- Sell it!"
Buy it
: they acquire high-quality, income-producing assets at discounts to replacement costs.
Fix it
: rapidly and proactively address any capital structure, physical, or operating issues pertaining to the investment. And
Sell it
: Once issues are addressed, they sell the investments, typically to core investors. The average hold period has been slightly more than three years; between 2005 and 2007 they sold more than $60 billion of assets.
Housing Market crash- Burst of the housing "bubble"
four factors that are thought to have caused the crash: 1) relaxed mortgage lending standards, 2) low short-term interest rate policies by the FED, 3) increased leveraging by investment banks, and 4) an increased debt-to-income ratio for households.
Mortgages & Household formation
Mortgages were 30-year fixed rate loans, with a down payment of about 20% or mortgage insurance if the down payment could not be met.
The Community Reinvestment Act was revised in 1995 to motivate banks to increase their mortgage lending to lower-income households; people believed that they could afford slightly bigger houses, considering the more lenient rates, and started to build up their credit card debt.
Business Successes & Failures
Real estate giant Century 21, operated by the company Realogy, fell into major debt. It was saved, however, by a private equity firm called Apollo Advisors L.P.
Apollo bought Realogy in 2007, right before the market crash, for $7 billion dollars to try to refinance its debt; paying 2 million of the company's own revenue, and borrowing 6 billion.
An article called
"Are 'Wall Street Buyers' Like Blackstone Group Creating Another Housing Bubble?"
looks into how big businesses- such as Blackstone- are effecting the buying and renting markets. There was a lot of growth, even in the hardest hit areas. But when you look closely, the growth is not in new homes, rather it is in foreclosures. They are not the average investor- they are huge institutional buyers. Just last year, Blackstone was reported to be spending about $100 million every week just for buying homes. People are becoming worried that these bug investors will ruin the market further creating another "boom-to-bust" cycle, instead of helping with the economic recovery.
I enjoy being able to work with different people coming from different backgrounds and styles... one obvious downfall is that you don't like everyone you meet. some clients are obnoxious but gotta make the sale.
As an employee, during a sellers market things are much easier and there is less tension at work. During a buyers market there is definitely more pressure coming from the boss to make the sale-because people are more cautious and often times less of a profit is made. But the market, like many things is cyclical. It's really just a simple supply and demand issue.
What is it?
Supply & Demand
As with all things it takes time to heal; the market only start to look better- not perfect- after some time.
Companies like Century 21 that were able to avoid bankruptcy are slowly growing back, more jobs are being created for people, and household growth also continues to increase.
There have been improvements the economy and the rebuilding of the market; we must, however, be cautious that we do not cause another “housing bubble” to burst
http://realestate.msn.com/article.aspx?cp-documentid=21437831
The 5 most expensive ZIP codes

94027: ATHERTON, CA
94022: LOS ALTOS HILLS, CA
10065: NEW YORK, NY
94920: BELVEDERE, CA
11962: SAGAPONACK, NY
Median Home Price- 6.7 million
http://www.investopedia.com/terms/f/fanniemae.asp
These government-sponsored enterprises provide a secondary market in home mortgages.
On September 6, 2008 the FHFA announced Fannie Mae and Freddie Mac would be placed under conservatorship.
Government Intervention
Housing and Economic Recovery Act of 2008 was enacted to deal with the subprime mortgage crisis by guaranteeing up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers. The act also established the Federal Housing Finance Agency.
Housing Market and the Economy

Residential investment is expected to grow 10.3%

More Homeowners Are Likely to Return to Positive Equity

Mortgage Rates Are Expected to Rise

Foreclosure Activity Is Expected to Slow

Further Declines in Home Affordability Are Expected


2014 Housing market

Some of the things that we can be expecting in the 2014 housing market:

These are the top 20 most populated areas in the Unites States with foreclosures.

Properties being Foreclosed From 2007-2012

Deregulation
Mandated Loans
Low interest rates
Buying and selling above normal Multiples

Causes of the United States housing bubble in 2007

Demographics

Interest Rates

The Economy

Government Policies/Subsidies

Major Factors that drive the Real Estate Market.


Residential real estate provides housing for families, and often can be a great source of wealth for many of them.


Commercial real estate, which includes apartment buildings, create great space for jobs in retail, offices and manufacturing.

Ways that the Housing Market Helps with the Economy

This is a chart of all the people that lost their jobs and got laid off during the recession. As you can see it is pretty accurate to the people that are having their houses foreclosed.

In response to the problems that subprime loans created the U.S. government created the Housing And Economic Recovery Act of 2008.
The act included;
Providing insurance for $300 Billion in mortgages to support around 400,000 home owners.
Provides loans for the refinancing of mortgages to those living in a house with a risk of foreclosure.
Improvements to mortgage disclosures.
Local assistance to help buy or renovate foreclosed properties.
And increasing the national debt ceiling by $800 Billion.

Regulations cont…

About eight years after the housing bubble burst, buyers and sellers will be doing business under new regulations, to target loaning strategies that allowed customers to establish more debt than they could handle. In 2010, the Dodd-Frank financial overhaul law put the newly created Consumer Financial Protection Bureau (CFPB) to establish new rules to require lenders to determine if their loans were affordable to the borrower or not.
Lenders must now verify a document including an examination of at least their; income, assets, credit history, debt obligations and employment status in order to be assured the person has a reasonable chance to repay the loan.
The CFPB has also issued rules for “qualified mortgages” in order to protect lenders from law suits. Under these terms those receiving a loan are not allowed to spend more than 43 percent of their monthly income on their debts.

Regulations

How Interest Rates Affected the Financial Crisis

Interest Rates and the Housing Market

There are two types of mortgages, a fixed mortgage and an adjustable rate mortgage.
While fixed rate mortgages do not change an adjustable rate mortgage can change as often as every month.
Most of these adjustable rates are connected to an index of financial securities, that change with the movement of the market.
Throughout the 2008 financial crisis many homeowners encountered foreclosure as their mortgages rates increased rapidly and they could no longer afford their payments.

Problems with Adjustable Mortgage Rates

Interest rates are determined by several factors such as the actions of the Federal reserve, the overall health of the economy and the rate at which people are saving money.
Since most home sales involve a borrowing of some money (mortgages) the housing market is greatly influenced by the changing of interest rates.
Interest rates are the rates at which money is borrowed for a specified time period. High rate meaning the borrower must pay more on their initial loan.
The U.S. Federal Reserve determines the rate at what they will lend to banks and other financial intuitions, which then affects the rate those banks will lend to businesses or individuals.

When mortgage rates are lower those who already have mortgages may try to re-finance which will swap their current interest rate for a cheaper one.
Mortgage rates are also influenced by the individuals credit. Lending money to people with poor credit obviously adds risk so to make up for this risk lenders will increase the interest rate.
During periods of low interest rates, more houses are built as the demand rises and it is cheaper for development companies to pay for construction.
Low interest rates can increase the need for houses but as soon as the price of a home increases the demand and price will then drop again.

In the early 2000’s interest rates where at an all time low as the FED was lending to banks at a rate of 1 percent.
During this time lenders took on clients with higher risk and gave out adjustable rate mortgages also known as “subprime” loans.
These individuals with poor credit had planned to capitalize on rising home prices and then re-finance into a fixed rate mortgage rate with better terms.
But by 2005 with interest rates rising the number of buyers decreased dropping the price of a house below their mortgage rate and many were unable to pay back money as their interest rates demanded causing them to default on their loans and go into foreclosure.

Joey
Jack
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