Challenges and Opportunities in Real Estate Today

Here's how five real estate trends are impacting business owners and how some are taking advantage of new opportunities.
Lead Copywriter, Professional Pen Copywriting
April 20, 2012

We have seen an increase in remodeling over the past year as new construction languished. But America is still experiencing one of the most severe downturns in the housing market in recent memory.

After speaking with mortgage brokers, real estate agents, homebuilders, economists and attorneys across the nation, patterns emerged. Five current trends that prevail in this industry became clear.

Let’s take a look at the major challenges that today's real estate industry faces, and how they matter to business owners.

Individuals not qualifying for loans

Even with the lowest rates in history, many people can’t qualify for mortgage financing.

"The difficulty is qualifying for these loans, especially for self-employed people," says Gloria Shulman, founder of Centek Capital Group in Beverly Hills, California. "It’s much easier for W-2 individuals.”

This is having a major impact on the entire industry, says Shulman, who has been a Southern California mortgage broker for the past 30 years.

Low property appraisals

One of the most difficult barriers to completing residential real estate transactions in today’s market is the appraisal.

"In 2009, Freddie Mac and Fannie Mae created new regulations that ban mortgage brokers from ordering appraisals on loans insured by the FHA," Shulman explains. “For consumers, that was supposed to mean home appraisals would more closely reflect a home's value.

"But the new rules that were supposed to make appraisals impartial are resulting in excessively low home values, because chosen appraisers aren't as experienced or as familiar with local markets.”

According to Shulman and others, many highly qualified independent appraisers who were supposed to benefit from these regulations are being driven out of business.

Distressed inventory

With fewer qualified buyers in the market, the surplus of foreclosed properties has hurt everyone, from families who’ve lost their homes to homeowners in high-foreclosure neighborhoods. Home values are plummeting in those neighborhoods because of the low appraisals.

Some lenders have exacerbated the situation by selling foreclosed homes for pennies on the dollar to investors who in turn rent the properties back to the people who used to be homeowners.

The regulatory environment

Government regulations have had a widespread and perhaps unintended effect on the real estate sector and America’s economic recovery. Change was needed, but now there are more rules and conditions for lenders, appraisers, agents and developers to adhere to, along with the market conditions.

“During the boom, we were too far deregulated in terms of who could give loans.... Realtors and developers [got] anything they wanted from local government—they would get to just build, build, build," says real estate attorney Gary Singer.

"Now the pendulum is swinging as far as it can to the other side. It’s becoming very, very challenging for all of these professionals to do what they need to do," he says. "[They need] to build, to lend, to sell in order to pull the real estate industry out of its doldrums and thereby assist the greater economy as a whole.”

Banks not lending, institutional investors buying

Many lenders have tightened guidelines and some aren’t doing real estate loans, at all. This creates a marketplace with excess inventory, attractive interest rates and very few qualified buyers.

Instead of individual investors, most of the activity is happening with institutional investors such as hedge funds, private equity buyers and foreign investors. Restrictive investment guidelines and lack of financing for investors are prolonging the economic downturn. With many independent brokers shuttering their businesses, borrowers have fewer options when it comes to getting financing.

The opportunities

Business owners who are having difficulty qualifying for loans should enlist the help of an experienced professional. Gloria Shulman advises entrepreneurs to get referred to “a quality mortgage broker who knows how to navigate these complex waters for the self-employed.”

A mortgage broker who is highly referred should be familiar with your local market and know who has money to lend, especially if you are a self-employed borrower. A veteran mortgage broker will be able to analyze financial scenarios and may be able to get you financing when other lenders can’t.

Another approach to financing real estate deals is to pool money with other investors or find a qualified co-borrower.

The large inventory of property sitting on the market is another potential opportunity.

“One of the potential solutions is a large-scale initiative by investors to buy these vacant properties, repair them and turn them into rental units for the next few years," said Rick Sharga, executive vice president of Carrington Mortgage Holdings.

"This is a huge win-win opportunity: It reduces the inventory of vacant homes, stabilizing local market home prices," says Sharga. "It injects capital into communities and creates jobs (repair and property management). It provides rental homes during a period in which most experts believe that we're going to see a growing demand for rental properties. And it starts generating tax revenues for cash-starved municipalities.

"It's not ‘the answer’ to the housing market, but it's certainly one of the answers."

Anthony Sills is a South Jersey freelance writer who has contributed to publications and sites such as The New England Job Show, “The Historic Westside” and Green City Times. He is currently working on his first book. He blogs for Contently.

Photo credit: Thinkstock

Lead Copywriter, Professional Pen Copywriting