Watch our video presentation on “Government Impact on Housing”.
2014 Second Quarter Newsletter
Every business must provide value to its customers in order to be a relevant resource worthy of customer support and loyalty. A key component of the value proposition offered by Certified Real Estate Investments, Inc. (CRI) is the provision of market specific analytics that affect the present and future value of your Central Florida real estate investments. Certain market indicators establish the fundamentals of market trend analysis and forecasting. These market indicators must be included in every market update in order to illustrate the current condition of the market regardless of external influences. Today, it is also necessary to evaluate macroeconomic influences in order to make informed decisions that significantly impact the financial performance of your investments. I hope you find the information provided here to be interesting, informative, relevant and beneficial.
Supply vs Demand (Absorption)
In order to put today’s supply vs demand relationships into perspective it is necessary to look back to January, 2009. This retrospection provides us with 66 months of data and allows us to see where we have been and where we might be going. In January 2009 there were 1,549 single family homes for sale in the 34711 postal code. Seventy-nine properties sold in January 2009. The active listings compared to properties sold ratio represents 19.61 months of inventory. In other words, based on the number of properties available for sale and the number of properties sold in the month of January 2009, it would take 19.61 months to sell the existing inventory. Six months of inventory is considered an equilibrium market; a market in which there is no advantage to the buyer or the seller. January and February 2009 were the worst real estate markets for homeowners in the last sixty-six months. There was only one buyer for every 19.61 properties on the market for sale. Advantage Buyer. In May, 2014 there were 701 single family homes for sale. One hundred eighty-six single family homes were sold in May, 2014. This means that a buyer had only 3.77 homes to choose from. Advantage Seller. In June 2014 there were 748 single family homes available for sale. One hundred forty-five properties sold in June 2014. The absorption rate was 5.16 months. This trend puts the market very close to equilibrium. The trend favors the buyer. The tiny uptick at the end of the series of graph postings (above) which represents the most recent housing activity, places downward pressure on housing prices in the third and fourth quarters of 2014.
Inventory and Pricing
If you ever thought that economic theory is hog wash consider this: As supply decreases, measured by months of inventory, prices in fact rise. As supply increases, as measured by months of inventory, prices stabilize and ultimately fall. Example: In January, 2013 there were 6.65 months of inventory. The median selling price was $160,000. In July, 2013 inventory hit a six month low of 4.18 months of inventory. In July, 2013 home prices rose to a median selling price of $174,555. In January, 2014 inventory increased to 6.66 months of inventory. Housing values remained flat, suggesting that increases in inventory put a halt on rising prices. In May, 2014 housing supply fell to 3.77 months of inventory. In June, 2014 the median housing price rose to $199,000. In June housing inventory rose to 5.16 months of inventory, very close to an equilibrium market. Market indicators suggest that prices will be flat, and may decline if inventory levels approach or exceed equilibrium levels. Reference the chart provided for a visual depiction of this phenomenon.
Median Housing Prices
The “Median Selling Price” chart clearly depicts the rise in median housing values over the last eighteen months. The median home value in the first quarter of 2013 was $159,667. The median home value realized in the second quarter of 2014 was $191,000. There is nothing else to know about historical housing values over the last eighteen months. This is great news. The question is, “Will it continue?”
Housing values have a tremendous impact on the financial condition of residential property owners. Given the volatility and relative unpredictability of the housing market over the last few years, it is imperative that property owners find a method for staying informed and predicting how fluctuations in the environment that affect housing values will impact their net worth. This newsletter is an offer to keep you informed about the impact of various factors influencing the housing market. Contact me for free consultation pertaining to your real estate investments. Everyone benefits from a healthy and predictable housing market. Please trust me to be your reliable resource for housing information. Your financial well-being is my first concern.
The Rental Market
In preparation for the wildly underestimated recession, the management team here at Certified Real Estate Investments, Inc. (and its sister company which is a global real estate sales firm) had to make a decision. Under enormous pressure to find a cash flow that would sustain the company through what turned out to be the deepest financial markets crash since the Great Depression, the team had to decide what business it wanted to be in. Since there was no apparent opportunity to complete residential or commercial real estate sales, the team chose to channel all of its resources into the property management business. Twenty-Fourteen has been the best year for residential sales for CRI and its sister company since 2010. The team here at CRI is ecstatic about the number of real estate transactions that it has completed this year and is optimistic that the sales business will continue to improve over the balance of 2014. That said, look at the Rentals Compared Sales chart! There has not been a single month since (before) January 2012 that there were more houses sold than there were rented. That says a lot about the economy. Residential property management is a great business. The CRI management team is happy to be in it.
More families are renting houses today than at any time in recent history. It makes sense that, due to the number of for enclosures and other types of distressed property dispositions since 2008, homeownership in the United States is at an historical low. This is a sad reality. The “Number of Properties Rented” chart tracks new residential lease originations, according to the “Same Period Last Year” perspective. Lease renewals are not taken into account. The “Tenant Occupancy Duration Mix” chart (below) addresses the implications associated with multi-year tenancies. The residential rental business is booming. People who are not accustomed to waking up and going to work in the morning make miserable property managers. The job can be done very successfully for everyone involved. The key to operating an effective property management company is maintaining a visible and substantial presence in the field where the manager’s clients’ properties are located. CRI property managers are consistently present in the neighborhoods where they manage rental properties. CRI leadership loves the property management business. We would love to manage your property.
The team at CRI has been renting houses for Central Florida property owners, to long term tenants (tenants who use the properties as their primary residences) since 2001. The “Tenant Occupancy Duration Mix” chart (next page) speaks to the duration of residential leases. There are a few conclusions that can be drawn from the statistics presented in the chart that are absolutely true. The chart reveals that, based on this sample set of tenants, 72.67% of the tenants stay in the properties that they rent for more than one year. At least 47.62% of the tenants in the sample set remain in the properties that they rent for more than two years. An unquantifiable characteristic of this sample set of real time tenants is the occupancy duration of the tenants who took possession of their residences in 2014. Based on the characteristics of the tenants who took occupancy of their residences before 2014 I believe that the most frequently reoccurring occupancy period will be three years. This is great news for landlords. Vacancy is a landlord’s worst enemy. Certified Real Estate Investments, Inc. has a great track record of retaining tenants. Let us procure, screen and retain your next tenant.
Marketing methods have changed dramatically, even over the last two years. iMobile Innovations is an internet service provider that allows subscribers to deliver short video updates to interested parties by email and to cell phones via text messages. The video update is delivered in the form of a short code link imbedded in a text message that connects to specific online video subject matter. As I indicated in the opening paragraph of this newsletter there are external forces that, in fact, manipulate the supply of housing on the market at any given time. This external force is the United States government. Knowing that you do not want to read material, such as the Federal Housing Finance Agency’s annual report to the United State Congress, regurgitated in my newsletter and knowing that the contents of the report and many other highly impactful reports like it are critically important to the value of your Central Florida real estate investment, I invite you to subscribe to an occasional video cast that quickly, efficiently and un-intrusively delivers the information contained in these formal filings to you, electronically. To subscribe to Certified Real Estate Investments’ public policy update series, text the keyword “update” (no parentheses) to 87804 from your cell phone. You will receive the most current public policy information affecting the housing market, instantly. For more information on this technology please contact me. To receive my mobile business card text C21WP to 87804 from your smart phone. My hard copy business card is attached to this correspondence for your convenience.
It is a privilege to have this opportunity to write to you. Thank you for reading my newsletter. I look forward to getting to know you and to doing business with you over the years to come.