Real Estate

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Colorado takes a new – and likely more effective – approach to the housing crisis

By Brian J. Connolly, University of Michigan

In recent years, Colorado has been a poster child for the U.S. housing crisis. Previously a relatively affordable state, it has seen home prices increase nearly sixfold over the past three decades, outstripping even Florida and California.

Once a problem confined to coastal cities, unaffordable housing has increasingly become an issue in the nation’s heartland.

Like elsewhere, there’s no single reason why real estate has become so expensive in Colorado. Instead, there are several: Demand is rising among millennials, seniors are remaining in their houses longer, investors are buying second homes and short-term rentals, and housing construction has failed to keep up. Then there are supply-chain disruptions and labor shortages.

The result? Colorado has been experiencing declining population growth, increasing homelessness and hiring challenges for employers.

But new legislation may change that.

This year, Colorado’s General Assembly passed several laws that, from my perspective as an expert on real estate and land use, will make Colorado a national leader in expanding housing affordability.

On May 13, 2024, Colorado Gov. Jared Polis signed a bill requiring local governments to plan and zone for more apartments and condominiums near transit stations. On the same day, the governor signed a law allowing accessory dwelling units – small apartments located on the same lot as a single-family house – to be constructed in large cities and towns. These bills followed others that eliminated minimum vehicle parking requirements for apartments and preempted local rules prohibiting people from living with roommates. These changes will make housing more affordable by allowing developers to build more – and more diverse – housing at a lower cost.

Even more legislation, including a bill that would give local governments a right to purchase existing homes in order to preserve affordability, will soon reach the governor’s desk. Each of these actions aims to hold down housing costs for developers and home seekers.

Restricting new housing causes problems

To end the housing crisis, governments need to get rid of rules that prevent developers from building new homes.

For decades, economists have observed that restrictive zoning laws in some of the nation’s wealthiest cities are a major factor blocking new development.

Under the law of supply and demand, limiting housing supply increases housing prices.

That doesn’t just mean it’s hard to buy a home in Boulder or Vail. Unaffordable housing in prosperous U.S. cities has far-reaching effects. It increases the household wealth gap between existing, higher-income homeowners and renters. It reduces workforce dynamism, as workers can’t afford to move to places where they might find better-paying, more productive jobs. This, in turn, hurts national economic growth. Unaffordable housing also aggravates racial inequity and accelerates gentrification and displacement in lower-income neighborhoods.

The housing affordability crisis even makes climate change worse. As people seek cheaper housing farther from employment centers, their commutes produce more greenhouse gas emissions.

Colorado is addressing issues head-on

Colorado’s transit-oriented housing law is intended to address these issues. And, as my forthcoming research suggests, it may prove more effective than other states’ interventions to make housing more affordable.

Beginning with Oregon in 2019, several states attacked single-family zoning by overruling local zoning laws that only allow one detached home per parcel. Many cities have passed similar changes.

Advocates herald these reforms, but eliminating single-family zoning has produced little new housing.

Bolstered by my experience as a land-use lawyer, my research demonstrates some of the issues with well-intentioned single-family zoning reforms: It is too expensive and difficult to finance projects that add just one or two additional units to properties sporadically. What’s more, small projects like these don’t attract experienced developers.

Allowing higher-density housing, reducing development fees and speeding up permitting time frames will result in more homes being built more quickly, my research shows.

Colorado’s legislation does a better job of harnessing market forces. The state’s new transit-oriented development law requires 31 cities to plan and zone for housing at an average density of 40 dwelling units per acre within a half-mile of a fixed-rail transit station or high-frequency bus corridor. That’s roughly equivalent to a three- or four-story apartment building.

It’s impossible to predict exactly how many new housing units this law will create. But the Denver region’s transit agency has 77 light-rail stations, and the law will force local governments to plan and zone for approximately 60,000 housing units around those stations alone. That number of units would help to close Colorado’s 101,000-unit housing shortage. And that’s not counting the units that will be allowed to be built along bus lines.

The new law builds on experiments in Massachusetts and California, where state governments have begun to require towns to zone for and eliminate red tape on moderate-density housing near transit. However, Colorado’s law goes further by allowing much denser development, mirroring locally adopted and highly effective transit-oriented development laws in Minneapolis and Los Angeles.

Colorado’s law hits a sweet spot for developers. Mid-rise projects are the most profitable type of new multi-family housing construction, according to the University of California Berkeley’s Terner Center for Housing Innovation. That’s because they can be built with inexpensive materials such as wood and don’t require specialized building-safety components that go into high-rise construction.

Developers can spread costs in these projects across more units than in, say, a duplex or triplex. Under proper market conditions or with modest incentives, larger projects make it more feasible for developers to set aside affordable units for below-market-rate affordable prices if local governments require it.

By design, residents of these new homes will have easy access to public transit, which should ease Colorado’s air-quality issues and reduce its carbon footprint. As a result, a broad coalition of housing, transportation and environmental advocates supported the bill.

Colorado’s transit-oriented law also addresses a common argument against state intervention in land-use regulation. Opponents argue that state laws governing land use eat away at local communities’ right to govern themselves.

Local control is political, if not legal, dogma in many states. Honoring Colorado’s strong home rule tradition, the transit-oriented development bill allows cities to determine where in their transit areas to permit multi-family housing. A town could spread the required units throughout its transit areas, for example, or concentrate them in a particular location. But they can’t opt out from building them in the first place.

About the Author:

Brian J. Connolly, Assistant Professor of Business Law, Ross School of Business, University of Michigan

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Opinions Real Estate

12 Mar

Commercial Property Prices: Why the Decline May Have Just Started

This index has already retreated 20% since May 2022

By Elliott Wave International

The major bust in property prices 15 to 20 years ago started with the residential real estate market.

This time, the commercial real estate market may have taken the lead. Here are some recent headlines:

[“Shark Tank Star”] Says a Coming Real Estate Collapse Will Lead to ‘Chaos’ — Yahoo Finance, Jan. 30
Commercial Property Losses Hammer Banks on Three Continents (Wall Street Journal, Feb. 1)
Bracing for the commercial real estate ‘reckoning’ — Reuters, Feb. 2

As rough as it’s already been for the commercial real estate market, it appears that “reckoning” is only in its early stages.

Keep in mind, as you review this chart and commentary from the February Elliott Wave Financial Forecast, that progress in a market takes the form of five waves. Once those five waves are complete, a correction is due (Note: The Elliott Wave Financial Forecast is a monthly publication which covers major U.S. financial markets):

This chart of the Green Street Commercial Property Index shows the latest decline, a 20% retreat from May 2022. In terms of time, the 20-month plunge is already close to the 22-month decline from September 2007 to June 2009. … [T]he crumbling demand for commercial space, not to mention the five-wave form of its rise from 1998, suggests that further declines are “baked in.”

The U.S. commercial real estate market is valued at $20 trillion, according to Bloomberg, so the developing crisis is not a minor ordeal.

Part of the reason the full brunt of the crisis has been delayed is that many loans have been granted extensions.

When those mature loans are refinanced, some borrowers could see their interest rates skyrocket. This could set off a wave of defaults.

Business Insider recently quoted an economist who specializes in the property sector (Jan. 23):

“[B]uilding owners are looking to ‘extend and pretend’ but that strategy can’t last forever as there’s still a $2.2 trillion mountain of commercial real estate debt that will mature by 2027.”

Some building owners have already experienced a lot of financial pain. For example, Aon Center — the third-tallest tower in Los Angeles — sold for $147.8 million. That’s 45% less than its 2014 purchase price.

This is just one example of what’s going on in commercial real estate.

Also know that the property and stock markets tend to be correlated.

If you would like to ascertain the trend of the stock market via Elliott wave analysis, you may want to read the Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

Get more insights into the Wave Principle by reading the entire online version of the book for free.

Just follow the link and you can have the Wall Street bestseller on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Commercial Property Prices: Why the Decline May Have Just Started. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Financial News Real Estate

17 Nov

Real Estate Co. Shares News We’ve Been Waiting For

Source: Ron Struthers (11/16/23)

Recently, Greenbriar Capital Corp. shared news that has Ron Struthers of Struthers Resource Stock Report giving it a Strong Buy rating.

Greenbriar Capital TSXV:GRB OTC:GEBRF Recent Price – $1.11 Entry Price – $1.15 Opinion – Strong Buy

Greenbriar Capital Corp. (GRB:TSX.V; GEBRF:OTC) announced that their 995-home sustainable entry-level residential subdivision, Sage Ranch in California, has received Planning Commission approval for the Precise Development Plan (“PDP”) at the November 13, 2023 Planning Commission meeting.

Wow! This is huge news we have been waiting for. Just consider it lucky that this development was not in Canada because it would have probably taken another two years to get approved. Construction will soon start, and Greenbriar will sell around 140+ plus homes per year for about six years. I can give a more solid revenue projection when we see what the first homes sell for, but some simple round numbers of $100,000 profit per home on 140 homes is US$14 million per year revenue.

Greenbriar only has 35 million shares out, so a measly $39 million market cap.

Jeff Ciachurski CEO of Greenbriar, says: “The City has requested our team meet with the city staff within the next day or two to get everyone moving forward to obtain the necessary construction permits. Sage Ranch was purchased by the company 12 years ago, and today marks a huge milestone to have a 995-home project approved in the State of California. We congratulate city staff, the Planning Commission, the City Council, and our Greenbriar engineering, building, and architectural teams for this gold medal effort.”

From an environmental standpoint, Sage Ranch will be a low-carbon showcase. Nowhere in the subdivision will any resident be more than a short three (3) block walk to either elementary, middle, or high schools. Match this with State-mandated solar roofs, smart meters, optional battery storage and EV charging, smart appliances, and energy-efficient building techniques; Sage Ranch amounts to an exceptional model of environmental planning and carbon reduction.

Greenbriar is also named as one of the top performers on the TSXV Venture Exchange. The 2023 TSX Venture 50 celebrates the strongest performances on the TSXV over the last year.

The Top 50 ranking is selected from 1,713 TSXV public companies. It is great the stock is among the top, but in reality, GRB stock is about even on the year or down a bit, proving how bad the TSXV has been.

‘

Important Disclosures:

As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of: Greenbriar Capital Corp.
Ron Struthers: I, or members of my immediate household or family, own securities of: Greenbriar Capital. I determined which companies would be included in this article based on my research and understanding of the sector.
Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.

For additional disclosures, please click here.

Struthers Resource Stock Report Disclosures

All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author’s control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Because of the ever-changing nature of information & statistics the author/publisher strongly encourages the reader to communicate directly with the company and/or with their personal investment adviser to obtain up to date information. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial adviser & is not acting as such in this publication.

Financial News Real Estate

26 Sep

What Will Happen to That $30 Trillion in U.S. Home Equity?

“It’s like someone turned off the faucet”

By Elliott Wave International

You probably remember the last big housing bust which began more than 15 years ago.

Elliott Wave International has observed that falling housing prices are generally preceded by a decline in home sales. The lag time may be some months, which was the case in the 2005-2006 timeframe.

Here’s what I mean: The December 2005 Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets, noted:

In October, home sales fell a larger-than-expected 2.7%. “It’s like someone turned off the faucet,”said a real estate agent.

The January 2006, Elliott Wave Financial Forecast provided an update:

Home sales are falling across the board now.

By mid-2006, U.S. home prices peaked, and a major housing bust followed.

Since the trough of that bust, U.S. home prices not only rebounded, but reached an all-time high in June 2022.

Yet, here in the late summer of 2023, homeowners may have a reason to worry. Here’s an Aug. 22 news item from bankrate.com:

Existing-home sales fall but prices still near record highs
Existing-home sales in July fell 2.2 percent, according to the National Association of Realtors. It’s a 16.6 percent decline from one year ago.

Given that prices are still near record highs, homeowners in the aggregate (at least for now) have a huge amount of equity.

As a Sept. 7 CNBC headline notes:

‘House-rich’ Americans are sitting on nearly $30 trillion in home equity. …

But, as we learned from the prior housing bust, change can sometimes be dramatic.

As a reminder, here’s a June 2011 news item (Cleveland.com):

Americans’ equity in their homes near a record low
The average homeowner now has 38 percent equity, down from 61 percent a decade ago.

Is another major housing bust just ahead?

Well, as Elliott Wave International has noted, the stock market and the housing market tend to be correlated.

So, if you’re wondering what’s ahead for housing, keep an eye on the main stock indexes.

An ideal way to do that is by performing Elliott wave analysis.

If you’re unfamiliar with Elliott wave analysis or simply need a refresher, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior. Here’s a quote from this Wall Street classic:

If indeed markets are patterned, and if those patterns have a recognizable geometry, then regardless of the variations allowed, certain price and time relationships are likely to recur. In fact, experience shows that they do.

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market’s actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.

If you’d like to read the entire online version of Elliott Wave Principle: Key to Market Behavior, you may do so for free once you become a member of Club EWI, the world’s largest Elliott wave educational community. A Club EWI membership is also free.

Join now by following this link: Elliott Wave Principle: Key to Market Behavior — get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline What Will Happen to That $30 Trillion in U.S. Home Equity?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Economics & Fundamentals Financial News Real Estate

14 Sep

Investors Flock To Disruptive Mortgage Tech Stocks

Streetwise Reports (9/13/23)

As the newer generation becomes homebuyers, lenders are seeing a major push for non-traditional lending options. Read to see how Rocket Companies Inc., Loan Depot, and Beeline Loans are disrupting the industry with online applications and artificial intelligence and why they should be on investors’ radars.

Owning a home is a huge part of the American Dream and the first step for some to solidify their place in adulthood. In fact, a survey by Bankrate found that “owning a home is still very much a part of the “American Dream,” as cited by 74% of U.S. adults. This is more than those who point to being able to retire (66%), having a successful career (60%), owning a car, truck, or other automobile (50%), having children (40%), and getting a college degree (35%).”

Still, most Americans are unable to buy a house outright, making mortgages a key part of achieving this height of American success.

Rising Interest Rates

In an August 5 article, Market Watch personal finance reporter Aarthi Swaminathan pointed out that The United States is at a ‘critical stage’ regarding mortgages.

The report noted that “if the economy continues to show signs of strength, and the U.S. Federal Reserve hikes its benchmark interest rate once again, rates could go up to 8%.”

Legendary investor Barbara Corcoran told Yahoo Finance that “Now is a great time to buy a home” despite rising interest rates.

However, the article also stressed that the economy is currently hinting at a possible cool-down and that the “rate of inflation is easing.” Swaminathan wrote, “That could lead to a slowdown — or even drop — in mortgage rates.” This is not promised, but something homebuyers and investor should keep their eye on.

Still, while some people may be waiting for interest rates to go down before they start their home search, some experts believe now is actually the time to buy.

Legendary investor Barbara Corcoran spoke with Fox Business about the current state of the market. She said, “The minute those interest rates come down, all hell’s going to break loose, and the prices are going to go through the roof,” she said, commenting that we could see a Covid-like market once again.

With this in mind, Corcoran told Yahoo Finance that “Now is a great time to buy a home” despite rising interest rates.

Homebuyers Looking for a Change

As with most things, mortgages come in two categories: The old and the new. There are the long, held mortgages that have been around for generations, yet they are running into some competition as the new guys usher in a new way to play the game of life.

Some of the long-standing mortgage companies include:

Wells Fargo & Co. (WFC:NYSE), which announced at the beginning of this year that it intended to scale back mortgages, but last year saw 143,000 loans at a value of US$79 billion.
Bank of America Corp. (BAC:NYSE), which saw 121,000 loans at a value of US$54 billion.
JPMorgan Chase & Co (JPM:NYSE), which saw 115,000 loans at a value of US$73 billion, with an average loan amount of US$631,000.

While non-traditional lenders did make gains in 2021, traditional financial institutions won back some ground in 2022, yet some non-bank lenders did manage to hold on to their advantages.

Rocket Companies Inc. was the top mortgage lender in 2022, with 464,000 loans that generated a value of US$127.6 billion.

Loan Depot Inc. had 156,000 loans with a value of US$53 billion.

It seems clear from these results that homebuyers are looking for change in the market. This may be partly due to the younger crowd gaining interest in home buying. 51.5% of millennials are homeowners as of this year.

This generation increased by 7 million homeowners over the last five years, but they are still behind Gen Z, who are becoming homeowners at higher rates than millennials were at the same ages.

Gen Z and Millennial homebuyers are more likely to gravitate toward mobile and online over traditional lenders. According to Chase’s Digital Banking Attitudes Study, over 86% of Gen Z and 89% of millennials conduct their banking through apps. 61% of Gen Z and 71% of millennials use apps to transfer money. Managing money through online means is overwhelmingly popular with younger generations due to its convenience. This is where nontraditional lenders come in.

Top Mortgage Lender Rocket Mortgage

Recently, Rocket Companies Inc. (RKT:NYSE) announced financial results for Q223. In Q223, Rocket reported net revenue of US$1.236 billion and adjusted revenue of US$1.002 billion. This exceeded the high end of the company’s guidance range.

In light of this news, Rocket’s Interim CEO, Bill Emerson, said, “Rocket‘s performance in the second quarter demonstrates the strength of our business and our commitment to delivering superior client service through innovation.”

Digital Platform Makes Rocket #1

In July, Rocket ranked number one in the U.S. for Client Satisfaction in Mortgage Servicing by J.D. Power for the ninth time. According to the release, this accolade was given based entirely on client feedback from an independent research firm.

With this, Executive Vice President of Servicing at Rocket Mortgage LaQuanda Sain said, “Many homebuyers don’t think twice about who will service their mortgage when they apply for a home loan but, with a mortgage lasting as many as 30 years, their servicer can make a huge difference.”

Rocket also ranked in the following categories:

Digital Channels
Easy to do Business With
Keeps Clients Informed and Educated
Resolving Problems or Questions

A big part of this ranking was Rocket’s 24/7 online self-serve resources, which aided over 100,000 homeowners in the aftermath of Hurricane Ian.

In July, Rocket ranked number one in the U.S. for Client Satisfaction in Mortgage Servicing by J.D. Power for the ninth time. According to the release, this accolade was given based entirely on client feedback from an independent research firm.

Rocket currently has a 4.5 out of 5 on Nerd Wallet, which noted a pro of the company being a “streamlined online process with document and asset retrieval capabilities, as well as the ability to edit your preapproval letter.”

On July 18, Morningstar Equity Analyst Michael Miller gave Rocket a US$13 Fair Value Estimate, noting, “In our view, Rocket Companies has established a clear competitive advantage in its core mortgage lending operations that should allow it to continue to increase its market share while still maintaining its strong margins and returns on invested capital.”

Then, in an August 4 report, James Faucette of Morgan Stanley rated Rocket as Attractive, saying, “As elevated mortgage rates and low housing inventories continued to weigh on industry-wide Purchase and Refi activity during the quarter, RKT sharpened its focus on expense efficiencies across the company.”

Technical Analyst Clive Maund told Streetwise Reports, “Rocket Companies’ business model accords with the times, which is why its stock is starting to advance out of a large base pattern. The consolidation pattern since early mid-July, which has brought the price back to its rising 50-day moving average, has allowed the earlier overbought condition to unwind, setting it up for renewed advance. It is believed to be forming a small base here just above its 50-day moving average from which it should soon advance, but even if the support at US$10.00 fails, it shouldn’t fall far before reversing back smartly to the upside.”

13 other analysts also cover the company.

Streetwise Ownership Overview*

Rocket Companies Inc. (RKT:NYSE)

	Institutions: 73.5%
	Retail: 21.06%
	Management & Insiders: 5.44%

73.5%

21.1%

5.4%

^*Share Structure as of 8/10/2023

Source: Thomson Reuters

Rocket: Ownership and Share Structure

According to Thomson Reuters, 73.50% of the company is held by institutional investors. Fidelity Management & Research Co. has 8.84%, with 11.22 million shares. The Vangaurd Group Inc. has 8.56%, with 10.88 million. Fidelity Investments Canada ULC has 5.77%, with 7.32 million. Caledonia (Private) Investments Pty Ltd. has 4.18%, with 5.30 million. Invesco Advisors Inc. has 3.93%, with 4.99 million, and BlackRock Institutional Trust Companies 3.88%, 4.93 million.

5.44% is with management and insiders. CEO Jay Farner has 4.20%, with 5.33 million shares. Director Matthew Rizik has 0.36%, with 0.45 million. President and COO Robert Walters has 0.26%, with 0.33 million, and CFO Julie Booth has 0.17%, with 0.22 million.

The rest is with retail investors.

Market Watch notes that Rocket has a market cap of US$22.88 billion and 127 million shares outstanding. It trades in the 52-week range between US$5.97 and US$11.68.

Loan Depot

On August 6, Loan Depot Inc. (LDI:NYSE) released financial results for Q223. Revenue was up by 31% from the first quarter of this year, which the company attributes to higher pull-through weighted lock volume and gain on sale margins for the company. Loan Depot noted it “continues to maintain a strong liquidity profile, exiting the quarter with a cash balance of US$719.1 million.”

In this release, CEO Frank Martell noted, ““As we move forward in the second half of 2023, we plan to continue maintaining a strong liquidity position and aggressively reduce our costs. Importantly, we are also investing in critical operating platforms, which we expect will deliver higher levels of automation and operating leverage and position us for additional growth and margin expansion in 2024.”

Analyst John Lafferty of PriceTarget Research gave Loan Depot an A rating (the highest given by the research company). Lafferty wrote that the stock was selling well beyond its value at US$2.21, gave the company a target price of US$7, and commented, “Reflecting future returns on capital that are forecasted to be in line with the cost of capital, LDI is expected to be Value Creation neutral. loanDepot has a current Value Trend Rating of A.”

According to Reuters, 21.93% of Loan Depot shares are held by management and insiders. CIO and Head Economist Jeff DerGuarahian has 7.73%, with 6.10 million shares. President Jeff Walsh has 5.30%, with 4.24 million, and Managing Director of Operations and Servicing Dan Binowitz has 1.01%, with 0.80 million.

29.63% is with institutional investors. Cannell Capital LLC has 5.73%, with 4.52 million shares. The Vangaurd Group Inc. has 5.47%, with 4.31 million. Parthenon Capital Partners has 5.11%, with 4.03 million. Brandywine Global Investment Management has 4.49%, with 3.54 million, and Knightsbridge Wealth Management has 3.33%, with 2.63 million.

The rest is in retail.

Market Watch notes that Loan Depot has a market cap of US$639.89 million and 78.89 shares outstanding. It trades in the 52-week range between US$1.2500 and US$3.0200.

New Kid on the Block: Beeline Loans

While public non-traditional lenders have been making waves, there is a private company rising in the industry, Beeline Loans Inc.

Beeline Loans, Inc. launched a proprietary front-end mortgage platform in June 2020 and closed approximately 2,000 loans by the end of 2021. For 2024, the company expects to close about 3,000 loans. Despite the timing of their launch, which included Covid-19, the highest percentage increase in rates in 25 years, war in Ukraine, and housing inventories and consumer confidence being near all-time lows, the company has gained market share against larger legacy lenders.

“While other mortgage lenders have been slumping, Beeline is gaining traction,” wrote Guy Bennett in an article for Yahoo Finance.

Beeline is also not stuck with just one type of loan offering. The company provides FHA and VA, while also providing popular Non-QM loans such as Debt Service Coverage Ratio (DSCR), bank statements, bridge, and fix-n-flip loans.

Bennett noted that “Beeline’s mix of home investors is about 300% higher than the national average.” However, this is not the only thing that sets Beeline apart from other online mortgage companies.

Chris Connelly, a Managing Director at Ellington Financial Group (a shareholder in the company), said,” Because of their very diverse set of product offerings, younger home buyers have more options at Beeline vs. traditional mortgage lenders and a better chance to get financing for a new home.”

On April 13, 2013, Robinhood revolutionized the stock-buying industry by fractionalizing stocks. This allowed people who previously were excluded from the stock market into the industry and paved the way for younger generations to get involved. Beeline is now doing for mortgages what Robinhood did for the stock market.

Beeline stands out from the crowd because it has incorporated artificial intelligence into its services with its chatbot, Bob. This addresses the needs of a rapidly emerging demographic who demand a digital process and real-time certainty.

On June 1, the company rolled out improvements to the AI system so that it is able to answer complex queries and give detailed quotes at all hours.

“Bob never sleeps,” the company noted, “he’s busy answering surprisingly complicated questions about Beeline’s wide range of conventional and non-QM products with great speed and accuracy, even at 2 a.m. He then poses highly personalized product-specific questions to generate a quote in real-time.

Chris Connelly, a Managing Director at Ellington Financial Group (a shareholder in the company), said,” Because of their very diverse set of product offerings, younger home buyers have more options at Beeline vs. traditional mortgage lenders and a better chance to get financing for a new home.”

Beeline is a private company with over US$40 million currently invested. The largest shareholder is founder Nick Liuzza, who has over US$10 million invested in Beeline. Cavalry Investment Fund, Ellington, and Atalaya are all significant investors.

Important Disclosures:

Beeline has a consulting relationship with an affiliate of Streetwise Reports, and pays a monthly consulting fee between US$8,000 and US$20,000.
As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Beeline.
Amanda Duvall and Katherine DeGilio wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

For additional disclosures, please click here.

Financial News Real Estate

01 Sep

Here’s a “Bold Call” on U.S. Housing Prices (Don’t Hang Your Hat on It)

This does not look like a bottom in median existing home prices

By Elliott Wave International

Back in October 2022, none other than Realtor.com asked the question:

Is America in a housing bubble–and is it getting ready to burst?

That was 10 months ago and just like a widely anticipated recession, the feared bursting of the housing bubble has yet to materialize.

Indeed, another real estate sector firm — Zillow — has gone out on a limb with this prediction (Fortune, July 28):

In February, Zillow economists made a bold call that U.S. home prices had bottomed…

In the months that have followed, U.S. home prices as tracked by the Zillow Home Value Index have stopped falling, and between February and June rose 4.8%.

Yes, Zillow’s forecast has mainly worked out so far, however, let’s also keep in mind seasonal and other factors.

Here’s a perspective from our July Elliott Wave Financial Forecast, which used another measure to gauge the health of the U.S. housing market (The Elliott Wave Financial Forecast is a monthly publication which covers major U.S. financial markets):

This chart showing the year-over-year change in the median existing home price doesn’t look much like a bottom. According to the National Association of Realtors, the median existing home sold for $396,100 in May 2023, a 3.1% decline from May 2022, “marking the largest year-over-year price reductions since December 2011.” Recent increases can be attributed to two factors: spring buying, which happens every year, and the run-up in equity prices, which makes people feel wealthier.

So, we’ll see what happens after the seasonal bias passes. And, just as importantly (or more so), we’ll have to keep an eye on the stock market.

History shows that the housing and stock markets tend to be correlated.

So, if the stock market tanks in a big way, we could have a replay of 2007-2012 on our hands.

Of course, that’s a big “if.”

One way to gauge the health of the stock market, and thus the housing market, is to keep an eye on the stock market’s unfolding Elliott wave pattern.

If you’re unfamiliar with Elliott wave analysis or need to brush up on your knowledge, read Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior.

Here’s a quote from the Wall Street classic:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

All that’s required for free access to the online version of the book is a Club EWI membership. Club EWI is free to join and allows members complimentary access to a wealth of Elliott wave insights regarding financial markets, investing and trading.

Follow this link to join Club EWI so you can read the book for free: Elliott Wave Principle: Key to Market Behavior.

This article was syndicated by Elliott Wave International and was originally published under the headline Here’s a “Bold Call” on U.S. Housing Prices (Don’t Hang Your Hat on It). EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Financial News Real Estate

18 Feb

How This Pattern from the Prior Housing Bust is Repeating

Here’s when homes will likely sell for once-in-a-lifetime bargains

By Elliott Wave International

Just like the gold “in them thar hills” motivated people from all walks of life to become miners way back when, real estate booms have motivated people from far and wide to become agents.

In both cases, easy riches seemed to be there for the taking.

But easy riches can be hard to get sometimes, as this New York Times headline indicates:

As Housing Market Cools, Far Fewer Become Agents

You might think that was from the past few months. No, the date of the headline’s publication was Sept. 7, 2007.

This next one is recent — a New York Post headline from Jan. 31 of this year:

Real estate agents vanish en masse as market slows — even in once red-hot Miami

So, agents are closing shop again — just like 15 or 16 years ago — before the worst of the prior housing bust.

The question is: Will this latest weakness in the property market turn out to be as severe as the last time?

No one knows for sure, of course, but Elliott Wave International’s analysis strongly suggests that real estate agents, homeowners, would-be buyers and would-be sellers might want to prepare for a worst-case scenario.

As Robert Prechter noted in his book, Last Chance to Conquer the Crash:

At the bottom, buy the home, office building or business facility of your dreams for ten cents or less per dollar of its peak value.

Remember, financial changes can happen quickly and dramatically.

That was the case with the 2007-2009 financial crisis. And, as indicated, changes are already underway in real estate again. This chart and commentary from our February Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets, provide more insight:

The monthly chart of existing home prices shows that the June-to-November decline brought the first break of the 12-month moving average since the first quarter of 2020. This is not unusual; the chart shows a seasonal tendency for prices to decline in the second half of the year. What is highly unusual, however, is the seasonal decline’s refusal to break below the 12-month average in 2020 and 2021. The sharp decline in sales, the five wave rise from the 1960s in home prices and the ability for prices to stay above the 12-month average for two straight years suggest that the current move below the 12-month average is no ordinary decline.

The bottom line is that it’s best to prepare now for swift changes ahead — not only in housing, but in financial markets and the economy generally.

Begin your preparation by starting to read Last Chance to Conquer the Crash now — 100% free.

Find out how to get instant access to Robert Prechter’s “must-read” wealth protection guide by following this link now.

This article was syndicated by Elliott Wave International and was originally published under the headline How This Pattern from the Prior Housing Bust is Repeating. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Financial News Real Estate

27 Dec

RE Investment Co. Buys Two Housing Properties

Source: David Chrystal (12/22/22)

The accretive acquisition adds scale to the company’s asset portfolio, from which it benefits, noted an Echelon Capital Markets report.

NexLiving Communities Inc. (NXLV:TSX.V) acquired two properties in Saint John, New Brunswick, Canada, for US$34.3 million (US$34.3M), reported Echelon Capital Markets analyst David Chrystal in a Dec. 16 research note.

“The acquisition is immediately accretive,” Chrystal wrote, in that it uses the company’s excess cash, the related mortgage has a below-market interest rate, and the increased scale lowers NexLiving’s general and administrative expense:net operating income ratio.

Expanding Its Asset Portfolio

Chrystal described the new properties comprising 142 suites. One, at 50 Calabria St., encompasses a newly built, 82-suite luxury building with lots of amenities, including pickleball and basketball courts and fitness and community centers, and the adjacent land is approved for 85 suites. The second property, at 5 Woodhollow Park, features 67 suites built about 12 years ago. The blended cap rate, including the land, is 4.75%.

“The purchase was financed in part with US$25.7M of mortgage debt at an average interest rate of 3.06%, with a weighted average remaining term of 3.5 years,” Chrystal relayed.

The company used most of its US$9.8M in cash and cash equivalents to cover the $8.6M cash portion of the total consideration for the two New Brunswick properties, NexLiving. It will generate incremental cash from nearly US$25M of mortgage debt maturing in early January and April 2023, but “any significant further acquisition will require incremental equity,” wrote Chrystal.

Looking forward, he added, “We believe NexLiving’s existing portfolio will continue to deliver solid operational results. Though excess cash is a drag on our near-term financial forecast, once liquidity is deployed, we see significant per-share cash flow growth.”

Continued Scaling Up

The analyst pointed out that the scale realized from the most recent purchase, taking year-to-date acquisitions to about US$69M, is benefitting the multifamily property owner. Now, general and administrative (G&A) expense represents about 20–25% of run-rate net operating income, noted the analyst. The Mountain Road acquisition would further expand the Canadian company’s asset portfolio to about 1,200 units valued at more than US$240M and decrease G&A to about 15–20%.

“Should NexLiving continue to execute on its considerable pipeline of acquisition opportunities, we expect that the G&A ratio will dip further,” noted Chrystal.

Echelon has a Buy rating and a CA$0.22 per share target price on NexLiving Communities, currently trading at about CA$0.14 per share.

Disclosures:
1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with: None. click here for more information.

3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Important Disclaimers for Echelon Wealth Partners Inc., NexLiving Communities Inc., December 16, 2022

Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients.

Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.

U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules.

ANALYST CERTIFICATION

I, David Chrystal, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.

During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer.

During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.

Financial News Real Estate

15 Dec

Federal Reserve just hiked interest rates for the 7th time this year – so why are mortgage rates coming down?

By D. Brian Blank, Mississippi State University

The Federal Reserve raised interest rates by half a percentage point on Dec. 14, 2022, to a range of 4.25 to 4.5%, the seventh increase this year. So far in 2022, the Fed has lifted its benchmark short-term rate, which influences most other borrowing costs in the economy, by 4.25 percentage points from a low of near zero as recently as March.

But even as the U.S. central bank lifts rates – and plans to keep doing so in 2023 – homebuyers are beginning to notice a pleasant surprise: Mortgage rates have been falling.

What’s going on?

We asked Brian Blank, a finance professor who has researched mortgage rates and bank loans, to explain the paradox of falling mortgage costs at a time of rising base interest rates.

What’s happening with mortgage rates?

After soaring for much of 2022, mortgage rates and other long-term rates are starting to come down.

The average rate on a 30-year mortgage has fallen 0.75 percentage points in the past month or so, after hitting a 20-year high of 7.08% in early November. Rates reached 6.33% on Dec. 8, the lowest level since September. This occurred over the same period as the Fed lifted its benchmark interest rate 2 percentage points.

Another key rate that fell is the yield on 10-year Treasury bonds, which has declined by a similar amount, to 3.5%.

Why are mortgage rates falling if the Fed is still hiking?

The short and rather boring technical answer is that bond markets anticipated this rate hike many months ago. And as market factors largely dictate the costs of borrowing, the increase was already absorbed into home loan rates.

Mortgage rates, while rising due to the Federal Reserve’s rapid hiking pace, are actually more closely linked to the interest rate on Treasury securities, specifically the yield on the 10-year Treasury bond. That security began to anticipate the Fed’s interest rate increases a year ago and rose from less than 1.5% in December 2021 to more than 3.25% by June.

And now, with signs that inflation has already peaked and amid growing concerns of a slowing economy, these longer-term rates are coming down in anticipation of fewer future Fed rate hikes than expected only a short time ago. In fact, mortgage and other long-term rates may keep falling over the coming months – assuming the Fed manages to get inflation under control so it is able to lower its benchmark rate again.

Why do mortgage rates follow the yield on the 10-year Treasury bond?

Even though 30-year mortgages can be held for three decades, most people sell their house or refinance within a decade, which means the investor who is receiving the mortgage payments is effectively investing in a 10-year bond.

As a result, the average 30-year fixed rate mortgage interest rate is normally 1 to 2 percentage points higher than the yield on the 10-year Treasury bond.

However, when the economy has more uncertainty than usual, like earlier this year, this spread can get as large as 3 percentage points. This uncertainty can be the result of a potential economic downturn, the possibility of the Fed raising rates more than expected, inflation, Fed balance sheet changes or all of the above – as happened in 2022.

Why are mortgage rates higher than Treasury yields?

Since the United States Treasury is more likely to pay investors back than almost any individual homeowner, investors charge a higher interest rate due to the additional risk they are taking.

Even though individuals go to banks to borrow, banks often sell those loans to investors, who then receive the money individuals pay back on the loan.

Since individuals default on mortgages more often than the U.S. government defaults on Treasury bonds, investors require a higher return to purchase the rights to receive the payments from those mortgages.

If mortgage rates fall, will the Fed have to raise rates even higher to control inflation?

Falling mortgage rates preceded an increase in the home purchase index, which is a measure of current market conditions to purchase homes. This suggests the housing market may finally start to pick up steam after slowing down all year.

Since the Fed is trying to slow economic activity to bring down inflation, this could cause housing prices to increase again, thus forcing the Fed to raise its target rate more than planned.

However, I believe the effective federal funds rate, which is the market rate directly influenced by the Fed’s target range, is already sufficiently restrictive to slow the housing market and restore more normal economic conditions in 2023. Moreover, the decline in mortgage rates is still quite small – they remain over double what they were a year ago – so the drop isn’t likely to have much of an impact alone.

What the Fed itself thinks about this challenge – and where it projects to take interest rates next year – is what I and many other economists and investors will be monitoring closely after it met for the last time of 2022. It should tell us what to expect in 2023 – so stay tuned.

Article updated to include Fed raising rates.

About the Author:

D. Brian Blank, Assistant Professor of Finance, Mississippi State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Opinions Real Estate

02 Dec

REIT Aims To Improve Value for Unitholders

Source: David Chrystal (12/1/22)

To achieve this end, the board of trustees is currently weighing various options, noted an Echelon Capital Markets report.

The Firm Capital Apartment REIT (FCA.U:TSX.V) posted a year-over-year AFFO/unit, or adjusted funds from operation per unit, gain in Q3/22 and during the quarter, commenced a strategic review, reported Echelon Capital Markets analyst David Chrystal in a Nov. 15 research note. Firm Capital invests in U.S. multifamily properties, owns assets and interests in joint venture investments, and provides debt financing.

The Canada-based real estate investment trust’s Q3/22 AFFO/unit was US$0.09, a 7% increase over Q3/21, Chrystal relayed. The figure beat Echelon’s estimate of US$0.06 due to a foreign exchange gain.

Target Price Decreased

However, Echelon reduced its target price on the REIT to US$7 per share from US$7.50, following the release of its Q3/22 results, to reflect writedowns carried out during the quarter on certain investments. The trust’s current share price is about US$4.67.

“Given the current capital market environment, a significant NAV discount is likely to persist under the trust’s current structure,” wrote Chrystal.

The target price could be raised in the future, Chrystal noted, if First Capital were to divest certain assets at an international financial reporting standards net asset value (NAV) of US$8.44 per unit.

This is because Echelon predicts near-term “incremental impairment of certain assets in the trust’s Northeast markets, where operations remain challenged due to regulatory issues delaying evictions and collections.”

Strategic Review Underway

The REIT’s board of trustees, in fact, may decide, during its strategic review, to dispose of some assets. The objective of the review is to “identify, evaluate and pursue potential strategic alternatives aimed at maximizing unitholder value,” Chrystal relayed.

Other options under consideration include effecting some type of merger or acquisition, privatizing, and changing the business to a real estate merchant bank or value-add model.

“Given the current capital market environment, a significant NAV discount is likely to persist under the trust’s current structure,” wrote Chrystal.

Distributions Paused

The analyst pointed out that while the review, in progress, is taking place, distributions by the REIT are and will remain on hold.

“A quarterly review will determine if the trust will allocate capital to unitholder distributions, unit repurchases, or reinvestment,” Chrystal added.

Echelon maintained its Buy rating on the First Capital Apartment REIT.

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4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

Disclosures For Echelon Wealth Partners Inc., Firm Capital Apartment REIT, November 15, 2022

ANALYST CERTIFICATION

Company: Firm Capital Apartment REIT | FCA.U-TSXV

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