It is the housing industry that is helping the economy these days. Another believer is our buddy! Warren Buffet. The nation’s most famous and arguably most successful investor is betting the depressed real estate market is poised for positive returns. Housing may give economy a lift It is the housing industry that is helping the economy these days. “Higher sales, prices, and building, albeit modest so far, are a welcome boost as other drivers of the economy falter,” a report from Reuters stated. In 2005, housing was 6 percent of GDP. The third quarter of 2012 it was 2.5 percent, causing several economists to be optimistic that residential real estate sales could add a lift to a struggling economy next year. Jobs related to housing have increased by an average of 11,000 this year; compare that to 2011 when housing-related jobs posted an average monthly decline of 1,000. By early 2013, housing-related jobs are expected to increase to 30,000 a month as new-home construction rises, says Jim O’Sullivan, chief of U.S. economist at High Frequency Economics. Sustained numbers like that would make housing a significant contributor to chipping away at the unemployment rate. Some analysts estimate the economy needs 150,000 jobs created a month to keep the unemployment rate steady. Another believer is Warren Buffet. The nation’s most famous and arguably most successful investor is betting the depressed real estate market is poised for positive returns. Buffett, aka. The Oracle of Omaha, announced last month that his Minneapolis-based HomeServices of America has bought a stake in two real estate brokerage networks. Terms of the purchase indicate Buffett plans to start up a brokerage franchise of his own. Homeservices, a subsidiary of Berkshire Hathaway, Buffet’s conglomerate holding company has partnered with a Toronto private equity firm to purchase a majority interest in Prudential and Real Living. The new company will begin showing up on For Sale signs in front yards in the 3rd quarter of next year, under the name Berkshire Hathaway HomeServices. “I am confident that these partners will deliver value to the residential real estate industry, and I am pleased to have Berkshire Hathaway be part of the new brand,” Buffett said in a statement. Real Trends editor Steve Murray said in the fragmented real estate market, the new venture creates “another big player with lots of capital that wants to grow its footprint.” FHA suspends foreclosures or Sandy victims The Federal Housing Administration ordered a 90-day temporary suspension of foreclosures in areas affected by Hurricane Sandy last week, HUD announced last week. “I directed all FHA lenders to impose a moratorium on any foreclosures for 90 days in disaster-affected areas,” Shaun Donovan, HUD secretary, told reporters. “We don’t want families to be victimized twice — once by the storm and once by a foreclosure.” Following suit, Fannie Mae and Freddie Mac also announced relief for Sandy victims after the storm ravaged the East Coast. Fannie- or Freddie-backed loans might also qualify for temporary forbearance on their mortgages, possibly as much as a year. Sandy will likely be the second costliest storm on record, behind Hurricane Katrina. The storm affected 127 miles of the Jersey shore, where homes worth millions were damaged. Some homeowners may find they can’t afford to repair the damage to their homes and will likely end up selling. “Flood insurance coverage and the money that comes from FEMA is likely to be insufficient, so people are going to get caught short,” says Jeffrey Otteau of Otteau Valuations. “Some may put their home up for sale ‘as is.’” States with the most foreclosure inventories As foreclosures fall across the U.S., they still are a large part of certain markets’ inventory. In its September housing data, CoreLogic reported the states with the highest foreclosure inventories: Florida: 11.5% of its housing stock, New Jersey: 7.3%, New York: 5.3%, Illinois: 5.2%, and Nevada: 4.9% The five states with the lowest foreclosure inventories are Wyoming (0.5%), Alaska (0.7%), North Dakota (0.7%), Nebraska (0.9%), and South Dakota (1.1%). Americans banking on real estate for retirement The trend of first-time investors buying foreclosed homes at historically low rates and turning them into rental properties is growing. “The typical small-size mom-and-pop investor has two or three properties, looking at it as an income supplement with the possibility of being able to sell at some point when prices rise enough for them,” says Lawrence Yun, chief economist of the National Association of Realtors. “I’d rather buy real estate than gamble on the stock market or get almost no return from putting my money in a bank,” Barton Wallace, a real estate investor who owns four rental properties in Hingham, Mass., told Reuters. “I don’t have any problem getting tenants.” Average U.S. rents have increased to a record $1,086 a month during the third quarter, according to MPF Research. Meanwhile, the vacancy rate dropped to a 10-year low in the second quarter. To finance purchases, investors are transferring cash into self-directed IRAs, which let them use money to invest and then move the returns back into the accounts. Investors purchased 66,780 homes in August, the highest level since the foreclosure crisis began. +++ Sources : Bloomberg, National Association of Realtors, Reuters and MCT Information Services
