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Too Many Listings Dilute Results

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 19th, 2015

If that real estate agent you're considering listing your house with brags about having dozens of listings from other clients, you may want to consider someone else.

Agents who are "working" more than, say, six listings at one time are not as productive as those who have less than a half-dozen in their back pockets, according to new research.

"Greater agent inventory is associated with a slightly lower price and a significantly higher time on (the) market," according to the study by three faculty members at Longwood University in Farmville, Virginia, who were joined in the research by a colleague at the University of Central Florida in Orlando.

Agents tend to prefer having a lot of listings: The more listings, the greater the probability of nabbing a commission. Their brokers, the guys who pay agents their share of the deal, like them, too: Not only does it make the company appear larger and more successful, it also means the broker will earn a fee even if the house is sold by an agent from another firm.

Indeed, brokers like listings so much that they encourage their agents to secure a seller's name on the dotted line by offering higher commission splits to the company's largest listers.

But the recent study published in the Journal of Housing Economics -- "How Many Listings Are Too Many?" by Xun Bian, Bennie Waller and Scott Wentland of Longwood and Geoffrey Turnbull of UCF -- found that additional listings place greater claims on an agent's time and energy. That, in turn, has "adverse sales performance consequences" for the client.

Most sellers want to sell at the highest possible price and as quickly as they can. But if you're just one of your agent's many sellers, you're all competing not only for buyers, but also for your agent's time and effort. And all of you are likely to become disenchanted if your expectations are not met.

One reason for sellers' disappointment is that most people neither understand nor appreciate the logistics required in selling a property, from the time a house is listed all the way through closing. That's understandable. After all, how many times in your life do you sell a house?

But sellers also fail to realize that the burden placed on agents to do their jobs increases exponentially with each additional listing.

Previous research has also found that more listings dilute agents' efforts and increase their focus on higher-priced properties. But the Longwood/UCF study goes further by actually putting the situation into numbers consumers can easily understand.

To do that, the researchers studied more than 21,000 properties listed on an unspecified Virginia multiple listing service that were sold during a 10-year period (from April 1999 to June 2009). The typical house in the sample -- 26 years old with three bedrooms and two baths -- was listed at $173,600 and was sold for $168,100. It was on the market for an average of 111 days.

Here's what the four researchers found: When an agent had nine listings, the average sales price for his or her "inventory" was only slightly below the baseline average -- not even 1 percent -- and marketing time was nearly 14 percent longer.

That works out to a $1,000 lower selling price and an extra 15 days on the market. Not terrible.

But when the listing agent represents a "very high" number of sellers -- 15 or more -- his or her typical selling price is 3 percent less and the property remains on the market for 129 percent longer than the average.

Numerically, that's more than $5,000 less than agents with more modest inventories get for their buyers. And it takes 142 days -- a month longer -- to find a buyer as opposed to 111 days for the average listing in the study.

That's significant, the study says: "While the impact on price is modest, the effect of agent inventory on liquidity is substantial." And it's true even though agents with a high number of listings represented just 10 percent of the sample.

The conclusion: "There is a relationship between agent inventory and (the) sales outcomes that sellers care most about -- selling price and time-on-market."

"The results are striking," the study continues. "Agents representing 15 or more listings may be trying to represent too many clients at one time, resulting in a substantially larger marketing duration and an important source of illiquidity for numerous homes in this market. ...

"Greater inventory diverts selling effort. ... resulting in longer time-on-market for all houses in the inventory."

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Loans for Mom-Pop Investors

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 12th, 2015

Financing has never been easy for mom-and-pop landlords who want to invest in rental houses. But the market is starting to open up.

In the past, small-time investors often out-and-out lied to would-be lenders that the houses they were buying would be their personal residences. Their only other options were to eliminate the need for funding altogether, by emptying their bank accounts and paying cash, or by finding so-called "hard money" lenders whose terms are often rather stiff.

Sometimes, conventional lenders knowingly "winked" at borrowers who weren't really planning to live in the houses they wished to finance. But even then, Fannie Mae and Freddie Mac -- the two major mortgage investors that buy loans from primary lenders -- placed severe restrictions on the number of rental properties individuals can finance.

Fannie Mae won't buy more than four loans made to a single investor, for example, and Freddie Mac limits the number to 10. Even at that, though, the two government-sponsored enterprises' lending guidelines are tighter than Bryce Harper's home run swing.

To fill that void, several big private equity firms, including the Blackstone Group, Colony Capital and Cerberus Capital Management, have created subsidiaries to back small-time investors who own a handful of houses. Blackstone's new venture is called B2R Finance, while Colony Capital has launched Colony American Finance and Cerberus backs FirstKey Lending.

Nearly one quarter of the country's single-family houses -- about 17 million units -- are not occupied by their owners. Some are not actively advertised for rent, and a portion are vacation homes. But the number "is a fairly good proxy" for the total number of rental houses nationwide, says Daren Blomquist of RealtyTrac, a real estate information company.

Since 2011, when the housing market turned around after a five-year lull, institutional investors -- those purchasing 10 or more houses in a calender year -- turned 632,000 or so houses into rentals to take advantage of their low prices and the growing desire of people to rent rather than own.

That leaves roughly 16 million houses that are owned by small-time investors. And those are the people firms like B2R Finance are hoping to serve.

Of course, you still need to have good credit and a hefty down payment of at least 25 percent. But if you meet those criteria and a few others, you might be in business.

The Charlotte-based B2R makes lending decisions largely on the cash flow of the underlying rental properties, as opposed to the borrower's personal debt-to-income ratio, which is a key determinate when lending to people who are actually going to live in the houses they are buying.

The company will lend from $300,000 to $3 million to what it calls "entrepreneurial" borrowers who own at least three houses, townhouses or condominium apartments worth at least $50,000 each, as well as multi-family apartment buildings smaller than 20 units. Loans will have fixed payments for a five- to 10-year term, but will be amortized as if they were 30-year mortgages.

Colony American Finance and FirstKey Lending offer similar terms or lines of credit for "flippers," who buy run-down houses and foreclosures, fix them up and resell.

Colony American's loans range from $500,000 for mom-and-pop investors to $60 million for large institutional investors. FirstKey provides loans of $500,000 to $500 million across a variety of loan products.

B2R will also finance a portfolio of rental houses with a commercial loan, but borrowers have to be corporations. Since many individual owners are not incorporated, they might consider setting up as limited liability companies.

So far, the company has loans with 200 or so borrowers -- each loan covers 15-20 properties -- and has "a very robust" future pipeline, a spokesman says. Significantly, it recently closed on the first-ever multi-borrower securitization -- that is, it bundled 144 loans backed by more than 3,000 properties into a security for sale to investors.

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Spring Blooms Eternal -- Finally

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 5th, 2015

Housing's traditional spring buying season has been noticeably sporadic, if not all but absent, since the Great Recession. But this year is different, according to one Wall Street analyst, who says the buying season is "actually taking place."

That's because lenders are starting to open their coffers and provide more mortgage money for increasingly impatient consumers who have wanted to buy new homes, but have been prevented by tightfisted banks.

At an industry meeting last month, Paul Miller, a managing director at FBR Capital Markets & Co., said he thinks mortgage originations may reach $1.5 trillion this year. That's much higher than last year's $1.12 trillion, or the Mortgage Bankers Association's 2015 estimate of $1.28 trillion. If Miller's on target, roughly 30 percent more mortgage money will be available to qualified homebuyers this year than last.

"Credit will be loosened over the next five years," Miller predicts. However, he also cautions that big banks will remain largely within the tight "credit box" they have inhabited since the downturn began five years ago.

Buyers who aren't eligible for loans under the government's Qualified Mortgage (QM) standards, which major lenders follow almost to the letter, may still be able to get home financing through a growing number of smaller, non-QM lenders. And that, observers believe, will help turn the tide that has made America more of a nation of renters since the "easy money" days that ended abruptly with the crash.

Jaret Seiberg, a financial services policy analyst at Guggenheim Securities, also sees some "green shoots" for the housing sector. He says he's hearing more voices saying, "'Let's try to find more ways for people to get into loans.' There is a door opening to provide relief."

At the same time, Seiberg still sees some roadblocks to looser lending, and wonders if the recovery will be "the shortest giant" when compared to other cyclical upturns after bad times.

He thinks the nation's homeownership percentage may stay at its lower-than-normal rate in the low 60-percent range, as opposed to the former rate that topped 67 percent. A 1-percent increase in the ownership rate would lift about 1.16 million households into the ranks of homeowners.

Seiberg also doubts that the nation's largest lenders will re-enter the non-QM space. He wonders, "Is there enough capital for smaller players?"

One possibility for making more mortgage money available is a new twist on real estate investment trusts (REITs).

REITs have traditionally financed commercial mortgages, such as those for office buildings, hotels and the like. But these days, there are more and more REITs focused solely on residential financing.

One such REIT, Cherry Hill Mortgage Investment Corp., was started in 2013 by Stanley Middleman, the president of Freedom Mortgage Corp., a major QM lender. In its initial public offering that year, it tapped into the capital markets for $158 million.

REITs may become mortgage game-changers because they are allowed to pay out large dividends (up to 90 percent of earnings) to their shareholders, which makes them attractive to investors. As they pay dividends, their value grows, and they can then solicit Wall Street for even more money.

The rest is simple: More capital means more money available to lend to consumers to ensure future buying seasons -- not just in the spring.

"REITs are a good platform to bring liquidity into housing," Middleman says.

REITs could access even more housing money if they were allowed into the Federal Home Loan Banks system (FHLB), a venerable government entity started to help the savings and loan industry make mortgages.

REITs are not currently eligible for FHLB membership. However, those that are affiliated with eligible member companies have a back door into the system. Full membership would give REITs direct access to FHLB's funds.

Where's the barrier to this potential flow of mortgage money? Changing FHLB eligibility has to be done by Congress. And nowadays, it takes an act of Congress to get Congress to act.

Who's to blame for the rather longstanding lack of ready mortgage funding? Some blame the big bad Federal Reserve, the nation's central bank. The Fed has done a pretty good job of propping up the ailing lending business since the recession began by buying securities backed by home loans. The Fed's readiness to buy has kept down the price of mortgage money obtained through Wall Street, which packages mortgages into securities, and that has helped keep rates low and more affordable to buyers.

On the flip side, though, the Fed has bought up so much of the market that it has depressed the normal trading of mortgage securities on the so-called secondary market. The Fed currently holds $1.7 trillion of mortgage-backed securities in its massive portfolio, which is about one-third of the total. And it has effectively taken those securities off the market.

Since the trading of the securities generates more money to lend, the Fed is now seen by many as being an enormous anchor pulling the mortgage money market down.

Not everyone in the industry is a Fed basher, though. Middleman, for one, says, "I think you have to commend the government on the action it took," he says. "I'm pretty proud of the job the government has done."

(Much of the reporting for this column was done by freelance writer Mark Fogarty.)

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