Lily Katz of Redfin opened up this week discussing new data on affordable homes, noting that the supply of the most affordable homes on the market jumped 13% year-over-year in Q3 2021. This was prompted by the end of forbearance programs, which means that many homeowners in this asset type likely placed these units on the market for these reasons.

Source: Redfin (Nov. 2021)

Redfin Chief Economist Daryl Fairweather had this to say about the data:

“The end of forbearance has forced many lower-income Americans to put their homes up for sale and become renters…This has caused the number of affordable homes on the market to surge, helping replenish inventory amid an acute housing shortage. It’s a rain storm after a long drought, but the drought isn’t over yet.”

Further, housing prices across all classes are dropping, but are still higher on a year-over-year basis.

Source: Redfin (Nov. 2021)

Ben Winck and Hillary Hoffower of Business Insider comment on the growing lack of starter homes in their article, Wealthy boomers aren’t just keeping millennials from homeownership — they’re screwing up the retirement plans of the rest of their generation.

“The problem is a historic shortage of not just housing but of starter homes — exactly what boomers need to meet their downsizing purposes. It’s pitting middle-class boomers against their wealthy peers and even millennials with enough cash to snag the few starter homes on the market.”

ADUs

Accessory dwelling units (ADUs) can add additional cash flow and value to investment properties, adding an average of 35% additional value to homes according to a new study. Porch conducted an analysis that was reported on by Realtor Magazine, showing that homes in larger cities with ADUs were priced, on average, 35% higher than homes without one.

“ADUs are not cheap to build, however. The average cost of an ADU is $180,000, typically about $260 per square foot. That number could stretch much higher depending on where you live. For example, an ADU could cost anywhere between $149,000 and $400,000 in the San Francisco Bay Area, and in Austin, Texas, an ADU can cost $300,000, the study shows. There are about 1.4 million homes with an ADU in the U.S. as of 2019. The states with the highest concentration of sales listings with ADUs are California, Florida, Texas, and Georgia.”

ADUs have been touted by many as one of the solutions to the chronic shortage of affordable housing because it adds density to the already existing supply. Indeed, many states and municipalities are relaxing the laws surrounding ADUs.

Oak Park, IL, recently voted for the creation of more ADUs by amending their zoning ordinance. In Berkeley, 2-story backyard homes were approved, where the city committed to the quick approval of ADUs up to 20 feet tall. Santa Cruz approved new county rules to streamline the process for building ADUs, and city council members did the same thing in Othello, WA, with many viewing ADUs as providing housing options for an aging population.

Rents and credit reports

According to new rules issued by Freddie Mac, landlords can now report on-time rental payments to help renters build their credit. This is another incentive real estate investors can use to help dissuade late rents.

Candyd Mendoza of MPA reports on the move, noting that rent reporting of on-time rent will be allowed through property management software to credit bureaus. When there are late rent payments, however, the technology, called Esusu, will unenroll renters from the program so to not negatively impact their rating.

The article quotes Freddie Mac CEO Michael DeVito as saying:

“Rent payments are often the single largest monthly line item in a family’s budget but paying your rent on time does not show up in a credit report like a mortgage payment…That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car, or even an education. While there remains more to do, this is a meaningful step in addressing this age-old problem.”

Michele Lerner of The Washington Post reports that “Freddie Mac will provide closing cost credits on loans to apartment owners who agree to report on-time rental payments through Esusu’s platform.”

Realtor Magazine reports on the move, noting that under 10% of renters currently have their on-time rental payment history reflected on their credit scores. Given that rents are the largest monthly expense for most, this is negatively impacting the ability of renters to qualify for other loans or better interest rates.