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The rise of ‘Zoom Towns’ and real estate investing

The rise of zoom towns and real estate investing
by Brad Cartier, posted in Newsletter

According to new research from Zillow, a switch to more telework could give almost 2 million renters, a total of 4.5% of renter households, the option to leave the urban areas. This, according to Zillow, gives them the opportunity to buy a starter home in a cheaper location.

Telework allows renters to move out of cities and buy a starter home -- Zillow

Source: Zillow

According to the report, “Close to half (43.6%) of U.S. workers are in occupations in which teleworking is at least theoretically feasible, though less than a quarter of these workers actually telework.” This is certainly something investors need to consider when choosing their next investment market.

Greg Rosalsky of NPR reports on the housing markets that are thriving during the pandemic, calling them ‘Zoom Towns’, and noting that they are only benefiting due to the ability to remote work. “Many Americans — especially 30-somethings who remain employed — are ditching their tiny rental apartments in hip districts of expensive cities and moving to buy houses in more affordable cities or the burbs for a life of shopping at Home Depot and spending their Friday nights eating mozzarella sticks at Applebee’s.” 🤢

Indeed, according to Oshrat Carmiel of Bloomberg, Manhattan is a canary in the coal mine for metropolitan apartment real estate, with a 7.7% drop in rents, 54% offering rent perks, and rental listings jumped to a record 15,025 in August, double the inventory from 2019.

Year over year change in rental listings in Manhatten

Source: Bloomberg

For the original article, see Conner Sen’s Bloomberg piece titled, Booming ‘Zoom Towns’ Should Ease City Housing Costs.

Update on mortgages

Interest Rates - Freddie Mac as of 2020 09 15

Source: Freddie Mac

Interest rates hit a record low, once again, and investors continue to wonder what to do in a low-interest rate environment. It can be good as it lowers lending costs, however it also encourages more home buying which can inflate prices and make acquisitions trickier.

James Kleimann of Housing Wire reports on the rates, noting that according to Black Knight data, “there are over 19 million high-quality refinance candidates in America, representing 43% of all 30-year mortgage holders.” This is even with refinancings already driving a record of $1.1 trillion in originations in 2020 Q2.

But mortgages are getting harder to get, according to Kathleen Howley of Housing Wire. “Mortgage credit in August was the tightest in more than six years as a weak economy prompted lenders to tighten standards…The group’s Mortgage Credit Availability Index fell 4.7% to 120.9 last month, the lowest since March 2014, indicating stricter requirements to get loans.”

Note that the 15-year rate is extremely low, and given that you’re paying a low rate in a quicker time, the total costs of your loan repayment would be historically low.

iBuyer update

We had a huge iBuyer update this week that drew much attention, as well as competing headlines.

MReport: The Pace of iBuying is Picking Up.

Inman: iBuyer purchases dropped 88% in Q2.

Both are technically correct, according to Redfin data, we saw a drop in total iBuyer purchases, however the pace is slowly increasing.

Redfin concludes from their data that: “iBuyers purchased the fewest homes in more than three years last quarter as the coronavirus pandemic put business on pause. But the market is now making a comeback, with iBuyers seeing a rebound in demand—and even bidding wars—from homeowners who are in search of quick cash and a safe way to sell during the pandemic.”

iBuyer market share drops during pandemic - Redfin

Source: Redfin

Further, Julia Falcon of Housing Wire reports that Zillow Offers recently launched in some Florida markets, its first new launch since the pandemic went into full steam in March.

Finally, OpenDoor is reportedly seeking to IPO using a Special Purpose Acquisition Company (SPAC) according to The Real Deal. Don’t worry, I had to look it up as well.

According to the report, “The venture-backed company is in advanced talks to go public through a merger with Social Capital Hedosophia Holdings…The deal would value Opendoor at $5 billion, and is set to be announced in the next few weeks.” The articles also note that SoftBank-backed OpenDoor was recently valued at $3.8 billion.

You can see Social Capital CEO Chamath Palihapitiya’s investment thesis regarding OpenDoor here. Further, Leslie Picker of CNBC reports that the acquisition is a bet by Social Capital “on two secular tailwinds — greater homeownership in America and the digitization of commerce.” Look for this move to further shake up the iBuyer landscape.

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