Positive Report for New Home Sales
Investors and Colleagues,
This week we received the Commerce Department’s report on new home sales for the month of September. The data was very encouraging…
For the month, new home sales increased by 5.7% – the first monthly increase we have seen since early spring.
An increase in new home sales does two things for the residential real estate market. First, it helps to reduce the inventory of new homes currently offered for sale. As the supply of new homes decreases, prices will naturally rise. Think back to your high-school economics class and those supply / demand curves. Whenever you reduce the supply, all other things being equal, you see an increase in the price…
The second issue is the effect that this report has on residential developers. When the rate of new home sales picks up – and when new home inventory begins to drop, this is an important signal to developers that it is time to begin building.
Over the last three years, these developers have worked hard to decrease their inventory. It’s expensive to hold on to large tracts of land and wait for the market to pick back up. Developers have to pay taxes, maintain the properties, and cover overhead expenses – whether the real estate market is hopping or not.
Many of our local developers have allowed their land inventory to dwindle, waiting for the right time to step back into business. This month’s new home sales report may be just the catalyst they need to begin negotiating to buy land – and it’s likely that when they start to look for good opportunities, the best lots will be those that Ashford Capital already owns – the very same properties that you are invested in…
Mortgage Relief Adds Another Catalyst
There’s one other big issue that has surfaced in the last week. On Monday, the Fed announced revisions to their mortgage refinance program which is designed to help homeowners arrange better terms for current mortgages.
The health of current homeowners is very important to us as real estate investors – even though our primary focus is on new homes.
In order for the new home market to improve, we need to see a parallel improvement for existing homeowners. If the default rate continues at a very high level, it will mean more existing homes on the market. The prices of these homes are typically very low – enticing buyers that would typically want to invest in a new home to consider fixing up a foreclosure.
If this new mortgage program turns out to be as successful as economists expect, it could be a game changer in terms of a turnaround in the residential real estate market.
According to the Wall Street Journal, this new program will allow 800,000 to 1 million current borrowers to refinance their homes at a better rate. This means lower monthly payments, quicker payoff of principal, and a significant overall boost to the broad economy.
The goal of this program is to allow homeowners to refinance – even if their loan balance is significantly more than the value of their home. So it doesn’t matter how far a homeowner is underwater, he or she should still be able to benefit from this program.
Swift Changes – Time Is Limited
When economic trends shift, they have a tendency to move quickly and catch unsuspecting investors off guard. This can be true because too many people believe one side of an argument and fail to think critically about a number of inputs they might not be considering.
In the case of residential real estate, we appear to be at the beginning of one such transition.
Investors have bailed out of real estate positions. Developers have reduced inventories, banks have foreclosed on properties, and real estate investors have moved on to other things.
But now that most have left this market, prices are very low and the tide is turning. We’re seeing the major home builders like John Wieland, Ashton Woods, and Beazer Homes all making investments in the Atlanta market. Business is picking up and it’s an exciting time to be invested in the recovering residential real estate market.
Are you ready to discuss how Ashford Capital can help YOU participate in this dynamic growth environment? I would love to take a few minutes and introduce you to some of the developments we are currently involved in.
Since each one of our investments covers a specific development, our investment space is limited. Once we fill all of the slots for each investment, the door closes and we move on to find new opportunities.
I want to make sure that you are able to participate in the best deals we are following right now. Don’t wait until the market has moved sharply higher before we talk. Give me a call today and we will figure out what opportunity fits best with your situation.
Wishing you every success,
Matt
Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners