We ask several Lakeland real estate professionals about the health of our residential market.
Travis Redder: I see that the banks have slowed down on releasing foreclosures; they’re not flooding the market like they were a couple of years ago. Therefore, prices are stabilizing. Overall inventory is down. I see the banks speeding up the short-sale approval process a bit. Many people are actually getting money from the bank to leave their homes in good condition.
TL: What does that indicate to you?
TR: The housing market is stabilizing, and prices are trending upward. Inventory is low, and interest rates are still low, creating a lot of demand.
TL: What are you seeing with regard to investments/rentals?
TR: There are some very big investment groups trying to buy homes all over Florida. They pay in all cash, and it’s hard for the average buyer who has to obtain a mortgage to compete with these big groups. Fannie Mae, Freddie Mac, and HUD do not allow investors to bid on their homes for the first fifteen days. It also appears that rental rates are going up a bit.
Kim McKeel: Certainly average price stability (which has obviously been improving lately) as well as average days on market are metrics we look at regularly to analyze the market’s health.
TL: How did Lakeland fare comparatively during the real estate downturn?
KM: From my perspective, Lakeland’s biggest challenge through the market downturn was obviously the glut of foreclosures and short sales that flooded the market and caused significant price depression.
TL: What is the general pulse of the market now?
KM: The pulse is clearly improved. I’m seeing much more activity on listings, including even many multiple-offer scenarios. Average days on market are down substantially, and lack of inventory is now a huge problem. Well-located listings that are competitively priced are disappearing quickly.
The Lakelander: What, if any, headwinds still exist in the local residential real estate market?
Jan Bellamy: The local real estate market will remain in flux for several years due to many factors. The shadow inventory — already foreclosed properties owned by lenders — is not diminishing. Lenders are listing foreclosed properties at retail prices and strategically holding them off the market waiting for prices to rise. There’s a new generation of sellers who are not intimidated by foreclosure suits but planning strategic short sales and filing bankruptcy for protection against lenders and other creditors. We have a new generation of consumers, following the example of our government, immune to responsibility for their purchases and eager to share the financial consequences with all of us.
Prices are rising, especially in the under $200,000 price range, and lesser prices which can be bought with FHA and USDA mortgages with little or no down payments. Homes can be owned for less than the cost to rent them. Young, first-time buyers realize they can buy a first home for less than rent and then rent the home for more than the payment when they’re ready to move. Appreciation may be limited in the future, but owning a rental property with positive cash flow and a low interest mortgage paid off by the tenant with nice tax write-offs can be a good investment to live in now, rent later, and add to a retirement portfolio, keeping that 3-4 percent mortgage for thirty years.
Unfortunately, these buyers have to compete against well-funded hedge funds with cash who are buying everything in Polk County worth having under $170,000. They’re driving prices up on themselves and every other buyer, with no regard for the neighborhoods. There are several neighborhoods in Polk County constructed in 2005-2008, when buyers paid top dollar, where most homes will eventually be sold short or as a foreclosure. Due to large corporate (out-of-state and out-of-country) investors making cash offers on all of these properties, the neighborhoods will become mostly rentals, which will prevent future owner-occupant mortgage approvals and ensure these neighborhoods become rental ghettos with absentee landlords.
As prices rise, reflecting increased demand and less supply, realtors, buyers, and sellers are battling the appraisers who determine values based on past sales using distressed (short and foreclosed) properties to value the current non-distressed prices buyers are willing to pay.
TL: Can you discern any impact from the Federal Reserve’s purchasing activity of mortgage securities?
JB: Government intervention in the national and therefore local real estate market is doing two major things to create a temporary economic fix. They are aggressively making the current climate unsustainable, and causing debt and distress for future generations. Our government is either printing or borrowing money to buy American mortgage-backed securities because no other prudent investor would buy this product. They have kept the interest rates artificially low, so buyers can more easily qualify to purchase. What else are you buying at 1950s’ pricing? Since there are no other buyers, the American people are using our assets and credit to buy government-created investments locked in at a low return for thirty years.
TL: What are some of your thoughts on the pulse of local residential real estate?
JB: Real estate is local and controlled by the supply and demand of its products. Currently, the artificially low interest rates have created a demand for homes by both owner occupants and investors. Savvy investors are using their self-directed IRAs to purchase rental properties. Out-of-area hedge funds and other investors, including international sources, are driving up local prices by purchasing appropriate rental properties which they will lease, repackage, and resell fractional shares of as various investment products, thus recouping their investments. Real estate is local, but these properties are destined to be packaged, sold, and managed from afar like the toxic mortgages that originally created the local problem.
A bright spot for owners who moved and could not sell, and have been leasing their underwater properties for the last few years, is that they can now consider selling to break even. Also, prices always rise from the bottom, not the top, so sales of lesser-priced properties create buyers for more expensive homes, and those buyers create sales of even more expensive homes. Sales of residential lots and new construction of custom homes over $250,000 are also slowly returning.