Investors snatching up single-family homes
| Saturday, Dec 31 2011 08:00 PM
Last Updated Saturday, Dec 31 2011 08:00 PM
Waiver of anti-flipping regulations extended
The Department of Housing and Urban Development's Federal Housing Administration has extended a temporary waiver of its anti-flipping regulations through 2012.
"This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight," said Acting FHA Commissioner Carol J. Galante in a statement issued Wednesday. "FHA remains a critical source of mortgage financing and stability, and we must make every effort to promote recovery in every responsible way we can."
FHA rules generallly prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011.
The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities, Galante said.
The extension is effective through Dec. 31.
The waiver contains conditions and guidelines intended to prevent the predatory practice of quickly reselling properties at inflated prices to unsuspecting borrowers. When the sales price of the property is 20 percent or more above the seller's acquisition cost, for instance, the waiver will apply only if the lender documents the justification for the increase in value.
Investors are storming Kern County with cash offers to buy homes outright. Most are keeping the houses for rental income, but a few are fixing them up and reselling at a profit.
Yes, that's right. Flipping is back.
It's not as rampant as it was during the run-up to the housing market crash, but there are a few brave souls dabbling in it again.
Real estate broker Robert Savage buys a few houses a year and has made money renting them out or turning them over again, as well as managing rentals for others through his company, Bakersfield Property Solutions.
"When the market was in free fall, that was really scary, but we're not really in a declining market anymore," he said. "It's pretty stable."
Some investors who joined the flipping game late in the housing boom lost their shirts when homes failed to lure buyers at any price, much less the price at which they'd been purchased.
Today, about half of the single-family homes in the Bakersfield-Delano market have negative equity, according to real estate data firm CoreLogic. That is, the owners owe more on the homes than the properties are worth.
But investors have returned to the market anyway -- in a big way.
In November 2009, a quarter of those buying homes in the Bakersfield area were not planning to live in them, according to the Crabtree Report, a monthly gauge of the local housing market prepared by Gary Crabtree of Affiliated Appraisers.
By November 2011, that figure had risen to 36.1 percent, or one of every three homes.
Prices have fallen so low here that bargain hunters have flooded in to snap up homes in or near foreclosure that are selling at deep discounts.
November's median home price of $131,500 was down 128 percent from the market peak of $299,925 in June 2006, and interest rates are at record lows.
"Prices haven't been this low for quite some time," said Michael Freedman of Titan Real Estate Group Inc., who buys properties and manages them for others. "Even if you look at San Francisco home prices, they're back where they were in the 1980s.
"At the same time, there's very little new construction going on because with all the regulations and fees, they can hardly sell them for what it costs to build them. Prices have got to rise."
Buying landscape
Inventory of existing homes is thin, which is keeping prices from dipping even further even though almost everyone agrees the market is artificially bolstered by the behavior of banks and loan servicing companies.
Lender-owned properties accounted for about a third of all home sales in November, but total listings were down 33.1 percent compared with November 2010, according to Crabtree.
It's not that there's any shortage of foreclosure activity. Thanks to the county's double-digit unemployment, there are still an awful lot of loans in default.
But banks have for the most part allowed their properties to only trickle back onto the market slowly, avoiding an inventory glut that would push down prices.
That's led to a seemingly contradictory market in which supply is limited despite 325 foreclosures in Kern in November alone.
The threat of prices crashing again in a second wave of foreclosures hasn't kept people away from Armando Montelango's seminars on how to flip houses. He was a personality on the cable TV show "Flip This House" during the boom years, and now is airing radio ads in Bakersfield and across the country pitching a $1,500 course on how to flip again.
"The market had gotten out of control and prices needed to come down, but now we've over corrected," Montelango said. "There are opportunities right now and this is the time to do it, when everyone else is scared."
The so-called shadow inventory of bank-owned properties not yet on the market doesn't worry Montelango.
"It's just not going to happen. It doesn't behoove anyone to let it all out and drive down the value of the banks' investment," he said.
Even investors who recognize the risk seem to feel more secure about real estate than stocks and bonds, which are struggling to overcome uncertainty about the euro zone and federal budget standoffs at home.
Attractive option for investors
Compared with the alternatives, investing in houses looks pretty safe.
Competition from and between investors has made it hard for families who are financing to get purchase offers accepted. Generally, sellers would rather deal with a wealthy investor paying cash than a family pre-approved for a loan or struggling to get financing.
Fannie Mae and Freddie Mac (quasi-government agencies that guarantee loans) have responded by instituting waiting periods for non-owner-occupied bids on lender-owned properties in their portfolios.
Both have also invested millions in fixing up their houses to make them more attractive to families.
Flippers often prefer houses that need repairs and upgrades because if properties already are move-in ready, the ability to add value -- and profit -- is limited.
Fannie Mae's First Look program, as its 15-day waiting period is called, has enabled the company to sell 60 percent of its properties to owner occupants or public sector entities, said spokesman Andrew Wilson.
"We prefer to sell to owner occupants because, No. 1, it stabilizes neighborhoods, which is especially important to areas that have been decimated by foreclosure," Wilson said. "And No. 2, you generally get better prices when you sell to an owner occupant, so it's a better return for Fannie Mae and ultimately the tax payers who have invested in us."
Such waiting periods haven't entirely deterred investors, however.
Because unemployment in the region remains high, and many have poor credit due to financial difficulties or previous foreclosures, a lot of families simply aren't in a position to take advantage of the low prices.
That's when patient investors swoop in with offers.
Crabtree estimates that after repairs and upgrades, there has been an average of $20,400 per house in profit on 23 houses flipped in the Bakersfield area since April of 2011.
A lot of the homes are in low-income areas. Homeowners there tend not to be able to afford repairs, so flippers see diamonds in the rough that can be sold for more than they were bought for after improvements.
But not everyone is choosing to flip right away.
Far more investors are holding for a while, leasing houses out to the many people who either can't afford to buy or have been forced back to the rental market after losing a house to foreclosure.
It's a long-term bet in a housing market that doesn't look like it's going to be healthy for a while, but investors seem willing to take their chances.
Savage, a property manager, landlord and flipper, said he feels pretty good about the long-term.
Sure, he said, it would make sense for lenders to unload all the real estate they've amassed, "but if they did everything that makes sense, we wouldn't be in this spot."
