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PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Is the 2014 Real Estate Market Still Hot?

  |  By Chris Shanahan, CISP®

PENSCO recently partnered with Oliver Chang, Co-Founder and Managing Director of Sylvan Road Capital, for a webinar that discussed the current and future state of real estate investing. If you missed the webinar, you can find the recording here. Whether you invest in property using a self-directed IRA or do it outside of your retirement accounts, this webinar is well worth a look for individual real estate investors as Chang offers some great insights on the 2014 housing market.

My take-aways from the webinar include:

1. Every major macro indicator for the US housing market supports growth.
Most metrics show an uptick in home sales and demand for housing. Because interest rates are still very low, payments by borrowers are quite affordable and shadow inventory is falling steadily as there are fewer delinquent payers. Shadow inventory, for those that are unfamiliar with the term, is a term that refers to real estate properties that are either in foreclosure (yet to be sold) or properties that owners are delaying putting on the market until the market value improves to a more satisfactory number. Additionally, distressed sales are continuing to fall as a % of total sales.

2. The housing recovery is not happening as uniformly as one may expect.
Chang noted that coastal regions, especially on the West Coast, are faring much better than the Midwest and Northeast, especially with regard to the drop in shadow inventory and the number of one-year-plus delinquent loans. Generally speaking, the markets that were hit the hardest during the housing downturn are having the most difficult time recovering.

3. It is still difficult for most people to take advantage of lower mortgage rates.
Although interest rates and mortgage rates are low, Chang pointed out that many individuals don’t qualify because of their insufficient credit scores. When it comes to real estate investing, credit is king, and people with 760 or higher FICO scores (along with 20% down payment on average) are the ones getting these low interest loans.

4. The number of all-cash buyers is increasing.
With an increasing number of millionaires augmenting their real estate portfolios, not to mention more institutions and hedge funds getting into the game, it’s becoming increasingly difficult for individual property investors to compete. These entities are using cash to buy up many of the properties that self-directed IRA and other individual investors might have been considering as investments (usually for buy-to-rent purposes, making money on the rental income until the time comes to sell the property).

Despite the headwinds, Chang believes there is still fertile ground in this uneven housing recovery for an individual property investor. He discussed two strategies – buy-to-rent and flipping – which I’ll cover in an upcoming blog post. Don’t want to wait? Watch the webinar yourself now.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal