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Many U.S. Communities Seeing Real Estate Inventory and Lead Shortage

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By Leon McKenzie, CEO, US Probate Leads

As a professional real estate investor, keeping a pulse on the changes in the market can be the difference between having a profitable year and seeing losses in your business.  Seeing these trends and knowing how to react to them can be one of the most critical skills for any individual working in the property business.

One of the most pronounced trends in the market recently has been the tightening of real estate inventory and, consequently, a shortage of leads.  This trend has paralyzed many real estate professionals and prevented them from finding and making the deals that will take their business to the next level.  The contributing factors to this problem come from many areas.  Knowing a bit about the factors that are causing the issue will help you to navigate the current changes in the market.

Contributing Factors to Real Estate Shortage

There are a myriad of factors that may be affecting your real estate business and your ability to find good properties – both on the residential and the commercial side – that will lead to profits and excellent options for your portfolio.  Alan Heavens of the Philadelphia Inquirer reported, “Research from the National Association of Realtors shows the U.S. needs to build 1.3 million to 1.7 million housing units annually to keep pace with yearly household formations averaging 1 million to 1.4 million, in addition to replacing the 300,000 obsolete dwellings that are razed each year.  Statistics released two weeks ago by Freddie Mac, however, show that only 910,000 units were started in 2008 and 550,000 in 2009. Projected starts for 2010 are better, but just 700,000 units.”

Decreased construction means that more homeowners and business owners are staying where they are in terms of their location.  Homeowners and business owners who would like to relocate to a new home or office space simply don’t have any options from which to choose.  This means that people are more likely to pursue the option of remodeling or adding on space rather than going out into the real estate market and looking for a new residential or commercial property.

Heavens said that it can be challenging to try to predict how much space will be needed in any given year, “Predicting how much housing is needed involves a complex calculus that weighs hard statistics (new-home starts, sales of previously owned homes) against a certain amount of demographic tea-leaf reading (household-formation forecasts). Thus, there isn’t complete consensus on what will be enough. ‘At current levels of housing construction and demand, the nation has just about two years’ worth of excess vacant homes for sale and rent,’ said Moody’s Economy.com chief economist Mark Zandi.” Without additional construction, many homeowners and those looking for commercial space may find themselves frustrated.

Here are just a few statistics that support the issues with the current real estate market according to Heavens:

  • “At the current sales pace nationwide, the supply of previously owned houses would take 7.8 months to exhaust, not including the vast “shadow market” (houses whose owners are waiting to sell until real estate recovers) and “distressed properties” (foreclosures and bank repossessions).
  • The inventory of unsold new houses is at 9.1 months of supply, and the volume for sale is flat at 234,000 homes — a 30-year low.
  • At the end of the fourth quarter, 24 percent of all U.S. homes with a mortgage were worth less than the loan balance. The housing vacancy rate in the fourth quarter was 2.7 percent.
  • The U.S. homeownership rate is 67.2 percent, down from its peak of 69.2 percent in fourth-quarter 2004 and decimated by record foreclosures.”

Booming Populations Contribute to Shortage in Some Areas

With the population in the United States continuing to shift to areas with temperate weather, positive economic conditions and those that don’t have issues with fresh water supplies, some areas are seeing a boom in population that no level of construction can meet.  Connor Hyde writes, “The Sugar Land and Missouri City area experienced a record number of home sales in 2014. However, population growth in the area paired with various construction woes has led to a low home inventory, causing a rise in home prices and a dip in sales since January.  Since 2012 Sugar Land and Missouri City real estate agents have classified the area’s housing market as a seller’s market due to the decreasing inventory of available homes and climbing home costs. As a result, many of Fort Bend County’s master-planned communities are struggling to keep up with the demand brought on by the influx in population in the region.”

In fact, these changes to the market have driven up the prices of the homes that are currently on the market.  Hyde quoted a local real estate agent, Shad Bogany, who has seen these changes first hand, “‘We have more customers than we have houses to sell, and we are getting multiple offers on houses,’ said Shad Bogany, a real estate agent with Better Homes and Gardens Real Estate in Sugar Land and Missouri City. ‘We do not have a lot of houses to sell, [and] we have the builders, who have been the biggest pushers of home sales in Fort Bend [County], behind in construction.’”

Issues with construction in population booming areas face a two-pronged challenge – not enough qualified workers for residential projects and not enough funding.  Hyde writes, “Home developers and cities are competing with projects in the Greater Houston area, such as the construction of the new Exxon Mobil campus in Spring and the continued construction of the Grand Parkway. These major projects have contributed to the lag in home construction as there are fewer skilled laborers available. ‘That is exactly why we cannot keep up with building homes fast enough,’ Reichert said. ‘There are just not enough workers out there to build homes [and] builders struggle on a daily basis to find workers.’”

While all of the construction that is being completed in booming areas may seem like a good thing, there are also ancillary issues.  Hyde writes, “The shortage in laborers and influx of construction projects has also led to an increase in the price of construction materials, which has directly caused housing prices to increase, Reichert said. Since 2011 material costs have increased by 11.7 percent and are expected to climb through June 2016, according to the national construction management company Turner Construction Company’s price index.”

Not only are homeowners faced with fewer properties to choose from and fewer new construction projects, but the new construction they do find may cost the average homeowner more money than they can afford to spend.  With rising construction material costs, the associated increase in new construction prices may prove to be too much for homeowners.  These homeowners may end up staying in their current home to avoid the problem.

Changes in Season Effect Inventory

Another contributing factor to the shortage in real estate inventory is the upcoming change in season.  While spring markets generally show expansion as more and more property owners put their homes on the market, the opposite it true during the fall and winter months, especially in the cold weather climates.  Said Lawrence Yun, “As winter approaches, inventory will slide further. Few homes are newly listed after Thanksgiving. Historically, inventory tends to be 15 percent lower in winter than summer. Last year’s seasonal decline was even more dramatic, at 25 percent. We hope we won’t see an inventory decline of that magnitude this winter. Home values rising much faster than income growth will markedly cut into housing affordability.”

The contraction in the market will pull many properties off of the market with buyers still looking to purchase homes.  Being able to find a property during any time of the year is becoming a significant challenge for buyers who want to have several homes they can investigate.

Alternative Leads are the Solution

Is there a way to solve the lack of leads currently occurring in the real estate market?  There is.  For real estate investors who want to continue to profit no matter the market, looking to alternative leads is the best strategy.  These leads – found in the probate, divorce and bankruptcy industries – are the best way for investors to find homes and commercial properties despite the shortage in the United States.

Probate leads are plentiful.  With experts estimating that more than 30,000 probates are filed each month throughout the United States, each and every county has new options of homes, personal property, vacation homes and commercial real estate that are for sale.  Executors, responsible for the sale of property held by someone who has passed, are under an obligation from their local court jurisdiction to sell the property in order to close the probate.  What does this mean for you as an investor?  For real estate investors, probate properties offer discounted prices, sometimes up to 30% to 50% off of current market prices, on homes and other property located in some of the most desirable areas of the region that you work in.  Executors are generally eager to look at all offers for property as they need to sell the property in order to pay medical bills, taxes, legal fees and funeral expenses for their loved one.

Divorce and bankruptcy leads are also another way to find great deals on property.  Usually governed by the local court system, these leads can also provide excellent options for discounted prices.  With divorce and probate leads it is critical to have your attorney review all of your documentation especially during your first experience working in this market.  The language used in the sales documents can be different that is used in traditional offers due to legal requirements.  Ask your legal counsel to ensure that there are ways for you to exit divorce deals if the parties do not cooperate.  As an investor it is not wise to have your deal stalled due to marital discord.

Accessing Alternative Types of Leads

The best way to access these alternative types of leads is to use a lead service that can help you to locate the most current and viable option for your business.  U.S. Probate Leads, the industry leader in lead coordination, offers probate, divorce and bankruptcy leads in every county in the United States.  Our qualified, trained professionals visit courthouses to collect the most up-to-date information on what types of property is available through the probate.  Using an expert service will help you to save time on trips to the courthouse and give you more time to visit properties and make contact with Executors.  We offer a full range of services, including webinars, seminars, books, communication software and even individualized mentoring.  Call us today or visit us at www.usprobateleads.com for more information.

Sources:

http://www.matrixrealestate.com/about-matrix/market-news/slowing-construction-could-lead-housing-shortage-experts-say

http://communityimpact.com/2015/05/06/low-inventories-labor-shortages-contribute-to-rising-home-prices/

http://realtormag.realtor.org/news-and-commentary/economy/article/2012/11/seeds-housing-shortage

 

US Probate Leads
Leon McKenzie
Chief Operating Officer

Leon cofounded US Probate Leads more than 12 years ago and has witnessed its growth during that period from a one city lead provider in the probate space to the only national provider of probate leads for virtually every county in the country.

Leon likes to point out that US Probate Leads is the only company providing Probate-related Real Estate-related leads to Investors and Realtors based on data collected directly from individual probate courts in virtually every state. This has been achieved by building a National Network of Researchers that visit each county one time each month. Leon’s team processes this incoming data and makes it available to individual subscribers for their use in reaching out to highly motivated property sellers.

Vast Inventory of Underwater Homes Causing Lead Shortage

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By Leon McKenzie

Professional real estate investors who are looking for properties have had a hard time finding a good supply recently.  Market forces, issues with the overall banking industry and consumer perception have all created changes to the real estate industry that have certainly hampered the purchases of homes and other forms of real estate.  These changes have made it difficult for real estate investors to find properties that fit the needs of their portfolio.

Underwater Homes Part of the Problem

You may have heard the phrase “underwater” used in the real estate market.  What it means is that the value of the property is less than the amount that it was originally mortgaged for.  This is common with homes that were purchased before the recession that started in 2008.   For the homeowner, this means that they are prevented from many options that would allow them to move to a bigger home or even to downsize.

When a home is underwater, the owner, in order to sell the property would have to provide the gap between the sale price and the mortgage value.  Most homeowners don’t have the financial wherewithal to come up with the thousands of dollars that it would cost to get out of a current property and move into a new property when they have to come to the closing table with cash.

Homeowners with properties that are underwater are also generally unable to refinance their homes as most banks require a full appraisal of the property before they will close on a new loan.  When a home is underwater, the new appraisal will establish the current value of the home, which may be tens of thousands of dollars below where the home was originally appraised when it was purchased.  This means that many, if not most, homes won’t be able to be refinanced. 

What is the result?  For the most part, homes that are underwater stay with their current owners until their mortgages are paid off because the owners can’t afford to sell them.  This situation in the market is a direct contributor to the shortage of real estate in the market.  Trey Garrison writes, “Redfin asks what’s causing the inventory crunch and what they found is that, according to RealtyTrac, more than 7 million homeowners can’t sell because they’re deeply underwater, meaning they owe more on their properties than they’re worth. That figure is falling as rising home values put more homeowners into the black, but those same price gains, coupled with weak wage growth and tight credit, are discouraging many from selling and trading up.”

Overall Inventory is Well Below Average

Due to the challenges with home values, there are fewer homes on the market than need to be in order to support a strong real estate investment market.  Garrison said, “Nationwide, the total number of unsold homes rose 5.3% in March to 2 million, but at the current pace of sales, that supply would be exhausted in only 4.6 months, according to the National Association of Realtors.  In the 50 markets Redfin analyzed, about 30% of unsold houses were fresh as of March 31, up from about 24% three years ago.  In Charlotte, where the number of properties for sale is at its lowest in at least three years, fresh listings — those less than 30 days old — accounted for only 5.5% of Charlotte’s inventory as of March 31, also a low. Last month, only 55 new properties came on the market, compared with 225 a year ago.”

This is a phenomenon that is being seen all over the country, though some areas are better off than others.  The shortage in real estate inventory means that prices are increased and real estate investors are having a much harder time finding properties that meet their budgets.  Garrison goes on to say, “In Indianapolis, even a 26.6% year-over-year surge in new listings in March wasn’t enough to replenish depleted inventory. Inventory is so low in Oakland, Denver and Dallas-Fort Worth that fresh listings abnormally accounted for a larger share of inventory last month as buyers whittled away at less-desirable properties and builders raced to keep up with demand. Dallas-Fort Worth added more than 100,000 people between 2013 and 2014. Last month, there were 14,332 fewer properties for sale than in March 2012. New listings fell more than 27%.  ‘All the desirable properties are getting snatched up in three days. The ones that are left become our stale inventory,’ Dallas Redfin agent Connie Durnal said. ‘It’s driving the prices up and increasing multiple offers. I don’t see it ending.’”

California is one area that is seeing both contraction and expansion in real estate inventory. Nick Nisperos writes, “Sales growth could be stiff where inventory is tight, experts said, such as the San Francisco Bay area. But in less expensive areas, such as the Inland Empire, demand will remain strong thanks to solid job growth in warehousing, transportation, logistics and manufacturing, experts said. John Husing, chief economist for the San Bernardino-based Inland Empire Economic Partnership business advocacy group, said sales are ‘gently rising’ during the economic recovery. ‘I think what is starting to come online a little bit more is migration from the coastal communities because a large share of the market has been priced out of the ability to buy anything,’ Husing said. ‘I think we’re going to start to see more of that migration with the economy of Southern California as a whole strengthening and the inability of a very wide percentage of the population to afford housing in Los Angeles, Orange and San Diego counties.’”

Certain geographical areas are seeing a rise in prices due to low inventory and other areas are more affordable.  What is happening in California is typical of what is happening throughout the country.

Slow Construction Another Factor in Lead Shortage

The shortage of homes on the market has also been impacted by slow construction. Decreased construction means that there are fewer new homes for people who want to move into another form of housing.  Construction has been slowed by a lack of demand as well as challenges for builders in finding financing in order to move forward with new developments.  Garrison writes, “Builders haven’t kept pace, either. They’re breaking ground on 1.07 million houses, condominiums and apartments a year, but the U.S. requires between 1.6 million and 1.9 million new units just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.”

New construction is an important way for the real estate market to create opportunities for people to move.  When enough new construction isn’t being created, then it decreases the overall amount of housing inventory for possible buyers and sellers, driving prices upward as supply slips.  Memphis is a prime example of where new construction has taken a nosedive, resulting in fewer leads overall for the total area and forcing companies to take radical steps in order to continue to build.  Not only is there shortage of homes being built, but a shortage of lots on which to build them.  Amos Maki writes, “’The lot situation in Shelby County is getting critically low,’ said David Goodwin Jr., owner of David Goodwin Jr. Cos. LLC and president of the West Tennessee Home Builders Association. ‘We know what the problem is. There is very little coming online as far as new developed lots are concerned.’ Some builders, including Grant Homes, even waded into the development world, developing lots and other subdivision infrastructure that developers normally handle. ‘Quite frankly we’d rather be a homebuilder but right now we’re a developer, too, because we need lots to be able to build on,’ said Kim Grant-Brown of Grant Homes.”

With a slowing of growth of the economy, fewer lots to build on and homeowners that are underwater, the stage has been set for investors to struggle in finding new homes and properties to add to their portfolio. 

Probate, Divorce and Bankruptcy Lead Sources Offer Hope to Real Estate Investors

Savvy real estate investors have come to the conclusion that current market forces are not that favorable in the traditional market.  There are other ways to find properties that do fit within most investors’ criteria.  Probate leads are one of the most popular and productive ways for investors to find homes and commercial property that can be purchased at a discount.  When a loved one passes away, an Executor takes charge of dispensing with the personal property that has been left behind, as ordered by the court system.  Due to the fact that items need to be sold to pay for funeral expenses, medical bills, taxes and unpaid credit cards, Executors are generally more than happy to sell property for thirty to fifty percent off.

Divorce and bankruptcy cases are another area where investors can take advantage of discounted prices.  Like Executors, those going through a divorce or a bankruptcy may be ordered by the court to sell a certain amount of assets in order to complete the case.  Many times, the owner is happy to let these go for a discounted price so that they can move on with their life.  It is important to note that the language used in these types of purchase agreements may be different than the typical forms used.  Check with your attorney to ensure that you are comfortable with the requirements of the court.

Finding Probate, Divorce and Bankruptcy Leads

Do you need to go to your local courthouse and spend hours digging through filings?  Smart investors use a lead service to avoid this frustration and streamline the process.  Professional lead services can deliver the results of a specialized search in your area directly to your inbox on a weekly basis, giving you the information you need to begin to evaluate these properties and connect with the individuals who are the current owners.

Using a lead service allows you to concentrate on the money making end of your business – evaluating properties, making deals and getting estimates completed.  This is especially critical when you are starting your business.  A lead service can provide you with a steady stream of viable, timely leads that will help you to find the best properties in the area to add to your portfolio.  In addition to residential homes, a lead service can help you find businesses, vacation homes, vintage cars, antiques and other personal property that can be purchased and resold. 

Get more information now!  U.S. Probate Leads is the top provider of probate, divorce and bankruptcy leads.  Contact us today for more information on how we can assist you with lead services as well as individualized training to help your business succeed.  We offer webinars, seminars, books and even individualized mentoring to help you build your best business.  Call today!

 

Sources:

http://www.memphisdailynews.com/news/2015/jan/28/lot-shortage-leads-to-fewer-new-homes/

http://www.housingwire.com/articles/33654-redfin-home-inventory-shortage-worse-than-it-looks

www.dailybulletin.com/business/20151009/housing-shortage-in-california-expected-to-continue

US Probate Leads
Leon McKenzie
Chief Operating Officer

Leon cofounded US Probate Leads more than 12 years ago and has witnessed its growth during that period from a one city lead provider in the probate space to the only national provider of probate leads for virtually every county in the country.

Leon likes to point out that US Probate Leads is the only company providing Probate-related Real Estate-related leads to Investors and Realtors based on data collected directly from individual probate courts in virtually every state. This has been achieved by building a National Network of Researchers that visit each county one time each month. Leon’s team processes this incoming data and makes it available to individual subscribers for their use in reaching out to highly motivated property sellers.