August 2022 – Page 2

How You Can Fix And Flip Around Market Shifts And Why Local Flippers Are Crucial To Solving The Inventory Crisis With Kurt Carlton

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The state of our economy today is an open book and we see the hit everywhere. But how has it been in the real estate space? Specifically, how has it been in the fix and flip niche? In this episode, Kurt Carlton, President and co-founder of New Western, talks about market shifts and the several factors affecting the real estate market. He also shares insights on what the current inventory crisis is really looking like. Tune in and learn more about initiatives for fix and flip developers and how you can battle inflation and hustle your way to the top. — Watch the episode here Listen to the podcast here How You Can Fix And Flip Around Market Shifts And Why Local Flippers Are Crucial To Solving The Inventory Crisis With Kurt Carlton Welcome back to the show. Thanks for coming back. I am joined by a good friend, Kurt Carlton. Kurt, thanks for stopping by. It is a pleasure. Kurt, take a minute, say hello, and tell a little bit about you and New Western. We operate a marketplace for investors to find houses to rehab. We do it in 20 states and we will be in probably 10 or 15 more. We are expanding rapidly. A lot has changed since 2008, but we have been doing this since 2009. I remember when you started and it seemed like bad timing to me, but I am very impressed with what you have done and the marketplace you have developed. I want to get straight into some content here. The first segment is Bottom Line Upfront. What I do is I give each guest two minutes. When I was in the Marine Corps, I used to brief generals. I always said, “You do not bury the lead. You give the general the most important information up front in case mortar shells come in.” What I am going to do is I am going to give you two minutes to talk to the readers and pontificate about what people should be thinking about, what they should be looking at, any data that is interesting to you that you are watching that you think people should watch. Things you think they should be doing or maybe some things that you have seen in the market that you think people should not do. Bottom Line Upfront, go. There a couple of big things. It is getting exciting again. Inflation is the big one. That is what everybody is looking at. Nobody seems to share the opinion on how to measure it, but it is here and it is big. Warren Buffett famously said in 2012, “The biggest hedge against inflation is the 30-year Fannie Mae mortgage.” It is a perfect defense against inflation. Even though rates are higher, you can reset your mortgage rate if rates go down through a refinance, as long as your financial condition stays the same. You cannot repurchase a home again later, if the price increases. I do not think that there is a future where home price appreciation starts to go backward rapidly. Inventory is at such an unhealthy low number. It would be unreasonable to think that you are going to lose home value. I think we will be just fine on homes. That is very much separate from a lot of the other concerns in the economy. I think what is different in this potential recession that we are going into now is, in the past, we did not have as much warning and the Fed did not do as well in giving us a warning ahead of time. They did not communicate as well. When a recession or these issues were nigh upon us, they had to react. What they are doing a really good job of is communicating so that the market can understand where we are heading and can slow down before they need to raise rates. I think that is already happening. We are narrowly looking at a soft landing as opposed to a hard landing, but we will see. I would continue to buy real estate. I would certainly leverage fixed-rate mortgages and debt whenever you can. That would be my advice, given the lack of inventory we have now. You brought up the dirty word, Fed. You said they are doing a good job. You may be the only person I have heard say that, but you are right. They have given us a heads up. Interest rates have doubled, but they have doubled from not even the bottom of the basement, like under the basement, under the foundation piers, down into the Earth’s crust. You brought the crystal ball segment of the show up earlier. Do you think that still rates could still go up? The idea is that they will continue to increase. If you saw it in 2018, we had the same issue. Rates went up and then they reversed it. Who knows if that is going to happen? The inflationary pressure is different than what it was in 2018. Nobody knows where we are going to go, soft landing, hard landing. Your teeth are on the edge. If you push too far, it is like a chain reaction. Everybody goes. I listened to Ben Bernanke in 2008 about how that was potentially avoidable, which I am not sure I believe. It was right before he handed us a signed book and all that. Maybe he was trying to save us. Everybody complained so much. They drove it to happen. Nobody knows, but what is different than it has been in the past is the Fed does a lot more forecasting about what they are going to do. That allows the market to react. It allows the slowdown that we need to slow down inflation and the labor costs that need to happen. I look at this more, real estate-wise, moving towards normalization and not moving towards a recession. It is inserting

WORD OF THE DAY: Sprag

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[sprag] Part of speech: noun Origin: Unknown origin, 17th century Definition: A short piece of wood or timber; A prop (especially made of wood or timber) used to support a roof, wall, or seam. Examples of Sprag in a sentence “After cutting the firewood, my uncle cut a few sprags to use as door stops around the house.” “My brother once built a backyard tunnel so complex it had a wooden roof supported by sprags.” About Sprag The source of “sprag” is obscure, though in its earliest appearance in English “sprag” referred to a twig, while around the same time “spragge” in Swedish meant the same thing. “Sprag” may also be related to “sprig,” describing a small branch or a rod. The origin of “sprig” is also unknown. Did you Know? “Sprag” has another meaning closely related to the two listed here. The verb “to sprag” can mean to create a simple vehicle brake by placing a stout stick (i.e. a “sprag”) in between the spokes of a vehicle. As a result, the noun versions of the word can be used as a verb: one can “sprag” a wall by supporting it with a sprag of timber, and one can “sprag” a wheel to stop its motion by jamming a sprag into it.

STEEP DROP IN REFINANCE ACTIVITY DRIVES CONTINUED SLUMP IN MORTGAGE LENDING ACROSS U.S. IN SECOND QUARTER

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Refinance Lending Drops 36 Percent Quarterly, Outweighing Rise in Other Lending Activity;Total Loans Down Another 13 Percent, Continuing Year-Long Decline;Purchase Mortgages Up 8 Percent While Home-Equity Deals Increase 35 Percent ATTOM, a leading curator of real estate data nationwide for land and property data, released its second-quarter 2022 U.S. Residential Property Mortgage Origination Report, which shows that 2.39 million mortgages secured by residential property (1 to 4 units) were originated in the second quarter of 2022 in the United States. That figure was down 13 percent from the first quarter of 2022 – the fifth quarterly decrease in a row – and down 40 percent from the second quarter of 2021 – the biggest annual drop since 2014. The decline resulted from another double-digit downturn in refinance activity that more than outweighed increases in home-purchase and home-equity lending. Overall, lenders issued $807.8 billion worth of mortgages in the second quarter of 2022. That was down quarterly by 11 percent and annually by 35 percent. As with the number of loans, the annual decrease in the dollar volume of loans marked the largest in eight years. “Mortgage rates that have virtually doubled over the past year have decimated the refinance market and are starting to take a toll on purchase lending as well,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “The combination of much higher mortgage rates and rising home prices has made the notion of homebuying simply unaffordable for many prospective buyers, which threatens to drive loan volume down even further as we exit the spring and summer months.” The downturn in total activity resulted from just 941,000 residential loans getting rolled over into new mortgages during the second quarter of 2022 – a figure that was down 36 percent from the first quarter of 2022 and down 60 percent from a year earlier. Amid another rise in mortgage interest rates, refinance lending decreased for the fifth straight quarter, hitting a point that was just one-third of what it was in early 2021. The dollar volume of refinance loans was down 35 percent from the prior quarter and 56 percent annually, to $310.1 billion. For the first time since early 2019, refinance activity in the second quarter did not represent the largest chunk of mortgages, dropping to 39 percent of all loans. That was off from 53 percent in the first quarter and from a recent peak of 66 percent in early 2021. Purchase-loan activity, meanwhile, increased modestly as the 2022 Spring home-buying season kicked into gear. Despite ongoing home-price spikes, the number of purchase loans rose 8 percent quarterly, to 1.1 million, representing 46 percent of all borrowing. Still, that gain was unusually small for the months running from April through June and left the number of purchase mortgages down 21 percent annually. The dollar volume of loans taken out to buy residential properties rose to $431.4 billion, up 15 percent from the first quarter of this year, but still down 12 percent from the second quarter of last year. The best-performing category by far in the second quarter was again home-equity lending. Home Equity Lines of Credit shot up 35 percent quarterly and 44 percent annually, to 341,704. “Borrowers looking to tap into their equity should know that HELOC activity has been particularly strong among credit unions and community banks, along with a small but growing number of depository banks,” Sharga noted. “While non-bank mortgage lenders may begin to more aggressively originate home equity loans, it’s not likely they’ll be active participants in the HELOC market.” The latest loan trends reflected a housing market in flux, pushed by competing forces, and continued a sharp break from a period when lending activity nearly tripled from early 2019 through early 2021. Total mortgages drop at fastest pace in eight years Banks and other lenders issued 2,385,051 residential mortgages in the second quarter of 2022. That was down 13.2 percent from 2,747,324 in the first quarter of 2022 and down 40 percent from 3,976,656 in the second quarter of 2021. The annual decline marked the largest since the first quarter of 2014. The $807.8 billion dollar volume of loans in the second quarter was down 10.6 percent from $903.7 billion in the prior quarter and was 35 percent less than the $1.24 trillion lent in the second quarter of 2021. Overall lending activity decreased from the first quarter to the second quarter of 2022 in 173, or 80 percent, of the 215 metropolitan statistical areas around the U.S. with a population of more than 200,000 and at least 1,000 total residential mortgages issued in the second quarter of 2022. Total lending activity was down at least 10 percent in 97 metros (45 percent). The largest quarterly decreases were in Knoxville, TN (down 59.9 percent); Roanoke, VA (down 52.7 percent); Charleston, SC (down 37 percent); St. Louis, MO (down 28.7 percent) and Philadelphia, PA (down 27.3 percent). Aside from St. Louis and Philadelphia, metro areas with a population of least 1 million that had the biggest decreases in total loans from the first quarter to the second quarter of 2022 were New York, NY (down 25.9 percent); Detroit, MI (down 25.6 percent) and San Jose, CA (down 24.7 percent). The biggest increases in the total number of mortgages from the first quarter to the second quarter of 2022 were in Atlantic City, NJ (up 32.5 percent); Erie, PA (up 18.8 percent); Peoria, IL (up 17.4 percent); Topeka, KS (up 15.6 percent) and Utica, NY (up 14.6 percent). The only metro areas with a population of at least 1 million where total loan originations increased from the first to the second quarter were Honolulu, HI (up 9.9 percent); Kansas City, MO (up 3.4 percent) and Rochester, NY (up 3.2 percent). Refinance mortgage originations slump to lowest point in three years Lenders issued 941,111 residential refinance mortgages in the second quarter of 2022 – the smallest count since the second quarter of 2019. The latest number was down 35.9 percent from 1,469,237 in first quarter of 2022 and 59.7 percent from 2,335,808 in the second quarter of 2021. The $310.1 billion dollar volume of refinance loans in the second quarter of 2022 was down 35.1 percent from $477.5 billion in the prior quarter and down 56.1 percent from $706.2 billion in the second quarter

New Western Grows U.S. Affordable Housing Inventory by 6,540 in 2022 without Building a Single Home

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Inventory growth fueled by 10 new market openings this year including the latest in Washington, D.C.; Fix-and-flip properties purchased through New Western’s marketplace sell for up to 31% less than new builds New Western, the largest national private marketplace for fix-and-flip residential investment properties, announced that the company has made home ownership accessible for more Americans by growing U.S. housing inventory by 6,540 units to date in 2022. Without building a single home, New Western accomplished this increase thanks to its data, advanced knowledge of local markets and its business model, which includes obtaining inventory from among the 16 million vacant homes across the United States as well as other off-market properties for less than $250,000 on average. As a result, homes that are purchased through New Western’s marketplace and later renovated sell for up to 31% less than new builds. New Western’s unprecedented growth in 2022 is driven by its rapid expansion into 10 new markets for a total of 50 locations nationwide. This includes its newest office in Washington, D.C., where New Western has set a goal to revitalize almost $1 billion in properties in that region over the next five years. New Western identified the District of Columbia and its surrounding cities as a strong opportunity for investors because of the need locally for a disruptive force in the residential real estate market: The median sale price of a single-family home in Washington, D.C., in July was $1.153 million, and just 98 homes sold that month, down 19% from July 2021 from Redfin. With 81.8% of homes in the D.C. metro area alone built before 2002, New Western will help address the affordable housing crisis in the D.C. area by returning aged and distressed homes to the market. “Our rapid growth continues to enable us to improve the quality of opportunity that New Western provides, especially as we launch into one of the largest metropolitan markets in the United States,” said Kurt Carlton, co-founder and president of New Western. “D.C.-area home prices have been rising for 13 consecutive years. We are in a unique position to deliver much needed inventory to this market and look forward to creating more affordable housing. I’d like to express my gratitude to all our employees for their hard work and commitment to deliver on this promise.” New Western’s model is growing residential housing inventory in the United States at a time when home ownership is increasingly out of reach for many Americans – due in part to low inventory and cost. Although housing inventory rose in May by 8%, that was the first monthly increase since June 2019. When compared to May 2020, active home listings have decreased by 48.5%, pushing prices up by record amounts in many cities from Realtor.com. “New Western offers substantial opportunity for sellers, buyers, and investors, as well as a positive impact in many neighborhoods. Their unique marketplace delivers value-add homes that would otherwise be unappealing to most residential homebuyers – something I really appreciate as a Chicago native,” said Joan Kaufmann-Stube, Managing Broker of Circled Squared Real Estate in New Lenox, Ill. “In addition to the great value New Western brings to the real estate ecosystem, one of the main reasons I recommend New Western’s marketplace to my investor clients is because their inventory is available on a first-come, first-served basis, eliminating bidding wars and increasing investor profitability.” Born out of the chaos of the 2008 foreclosure crisis, New Western consistently stands strong as a pillar of economic promise, thriving throughout times of hardship. On average, New Western buys a property every 13 minutes, has bought and sold approximately $12 billion in residential real estate. Fueled by more than 100,000 active investors and the belief in making real estate investment more accessible, New Western’s fierce momentum has positioned the company to acquire 10,000 properties and nearly $5 billion in transaction volume by the end of 2022. In addition to Washington, D.C., New Western market openings this year include: Birmingham, Ala.; Chicago; Fort Myers, Fla.; Greenville, S.C.; Indianapolis; Jacksonville, Fla.; Orlando, Fla.; Pittsburgh; and Salt Lake City. For more information about New Western, please visit https://www.newwestern.com. About New Western New Western makes real estate investing more accessible for more people. Operating in most major cities, our marketplace connects more than 100,000 local investors looking to rehab houses with sellers. As the largest private source of investment properties in the nation, we buy a home every 13 minutes. New Western delivers new opportunity for all—a fresh start for sellers, exclusive inventory for investors, and affordable housing for buyers. For more information, visit www.newwestern.com. 

Reali Closing Operations

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Reali, the real estate and fintech platform transforming home buying and selling, announced it will begin a shutdown and will be laying off most of the workforce on September 9, 2022. Co-Founder and Chairman of the Board Amit Haller said, “Reali was one of the pioneering companies to offer the ‘buy before you sell’ and ‘cash offer’ programs to homeowners. We believed deeply in benefiting the consumer foremost in every transaction. The six years Reali spent evolving the prop tech market in California helped elevate and transform the industry.” Due to the challenging real estate and financial market conditions and unfavorable capital-raising environment, Reali determined the best course of action is to close. Active real estate transactions will continue to be supported through the end of the year by a small team of employees. Reali is in ongoing conversations with companies that have expressed interest in acquiring specific parts of its business, including mortgage origination, title & escrow, and power buying. “We had an incredible six-year run delighting homeowners,” said Tyler Baldwin, Chief Executive Officer of Reali. “We want to extend our deepest gratitude to the thousands of homeowners who trusted Reali with their homeownership journeys, the Reali team, our investors, and those who rooted for us from the sidelines. It has been a pleasure to serve our communities.” About Reali Reali launched in 2016 and is a real estate and fintech company creating a one-stop shop to make homeownership streamlined, accessible, and stress-free every step of the way. We leverage first-in-kind technology and trusted real estate experts to serve home buyers, borrowers, and sellers in a single, integrated platform. Our wide range of alternative financing solutions makes a complicated process like buying and selling at the same time much less complicated. Customers can buy and sell in one coordinated transaction, eliminating resale contingencies, moving twice, and paying two mortgages at once.

WORD OF THE DAY: Acuity

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[ə-KYOO-ə-dee] Part of speech: Noun Origin: Late Middle English, 16th century Definition: Sharpness or keenness of thought, vision, or hearing. Examples of Acuity in a sentence “Jonah’s natural acuity made him a model student.” “The optician had noticed a worrying decline in the acuity of Martha’s sight in recent years.” About Acuity Acuity comes from the Latin “acuere” meaning “sharpen.” The word “acuere” is found in medieval Latin as “acuitas,” and in Old French as “acuite.” Did you Know? Acuity” shares the same Latin root word as “acute,” a word which, depending on context, can have a similar meaning. “Acute” can mean “having or showing a perceptive insight,” but it can also mean, “experienced to a severe or intense degree.” It has a third meaning as well; “acute” refers to an angle of less than 90 degrees.