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Leveraging Big Data in Real Estate Investing

• by Michael Jansta
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Post COVID-19 Forbearance & Foreclosure/Eviction Moratoria by Michael Jansta Let’s face it, nobody had 20:20 vision for real estate investing going into 2020. Now in 2021, even after all that we’ve seen and learned in 2020, our vision forward doesn’t appear much clearer. What we do see is COVID-19 continuing to rage on in all parts of the country despite vaccines in deployment, mortgage forbearance programs set to close but with the possibility of extension and moratoria on foreclosures and evictions extended until the end of January 2021 but also with a possibility (if not a probability) of being extended. Moratoriums on foreclosures put a stop to foreclosure sales in courtrooms and on the courthouse steps across the country. A mere trickle returned as abandoned/vacated homes and land were allowed to proceed to sale in some parts of the country. The double-whammy came from occupied REO and HUD’s Claims Without Conveyance of Title (CWCOT). A major source of post-foreclosure investor stock was hit by a nationwide eviction moratorium. With an eviction moratorium in place and continual extensions of that moratorium, attaining occupancy became virtually impossible to forecast. Basically, the acquisition of foreclosure sales and occupied post-foreclosure properties became exponentially riskier. Investors looking for distressed real estate were forced to turn to the retail market where demand was surging due to lack of inventory and historically low interest rates or compete over the small amount of existing pre-COVID vacant REO stock on or coming to market through property preservation channels. As of Dec. 6, 5.48% of active loans were in forbearance, according to the MBA, and trending down. This totaled approximately 2.7 million mortgages. At the same time, new forbearances requests hit their highest levels since early August showing that an increased COVID-19 surge is leading more homeowners to seek relief. This trend late in the year could be homeowners seeing protection as the window to enter a forbearance plan was scheduled to end on Dec. 31st. If the trend continues, we could see further extensions of forbearance options for affected homeowners. Either way, it still means that fewer homes will be headed to foreclosure in Q1 and Q2 of 2021 and that means less distress at foreclosure sales and REO/CWCOT second chance auctions. Lack of traditional inventory will force investors to get more inventive and figure out how to find deals within their existing markets, new markets, new sub-markets and the homes within them using data…BIG data. When leveraging all the data available today, investors need to be cognizant that these really are unprecedented times and the pandemic created unprecedented economic spikes in its wake. Data trends in nearly every sector set high & low peak records, jumping a decade worth of increases or decreases within a single quarter.  These wild movements broke data science models in every industry, including real estate. This is the reason we all hear about V, W and K shaped recoveries. In real estate, loans in forbearance spiked up then slowed dramatically to a much lower rate, loans in default have climbed from 3.8% to 6.3% (3.6 million loans) from August 2019 to August 2020 and, similarly, unemployment spiked up and then dramatically slowed. These statistics are often built into real estate market models and can deliver false positives and negatives. It is more important than ever to know which data is being applied within each model so you can make educated decisions factoring in the swings from 2020 that will continue into 2021. At Altisource, we look at dozens of public datasets to build into our models for our institutional clients and to validate the advice and recommendations for investors and agents/brokers who leverage our Equator, RentRange and Hubzu platforms. It requires crunching data sets like US Census data which includes Household Income (HHI) with home price data, our proprietary RentRange rental data, loan performance data (forbearance and delinquency) and many others into dashboards so we can compare markets with each other to see things like how many and what percentage of loans are delinquent, in forbearance or both. When you can map this data to MSAs you can then begin to layer in other data (examples would be employment data from the Bureau of Labor Statistics and Department of Labor or actively marketed rental or sale listings) to predict which markets might be more attractive for real estate investing when artificial barriers like forbearance and moratoria are modified or removed. When you layer this data over time into models with dashboards, we can look at a specific market in different ways: Household Income as a percentage of rent or home value trending over the past 5 or 10 years in that market. Comparing markets can show where high wage growth beats low wage growth and how that compares to real estate price increases versus rent increases. Some of these models can be productized like RentRange where markets or individual properties are analyzed to calculate cash flow and yield potential based on known comparable rents. Another example is at the property level on Hubzu.com where we crunch dozens of datasets to populate the investor calculator on each property on the Hubzu.com marketplace with estimates of current value, rent potential powered by RentRange, vacancy, property management cost, property taxes, HOA amounts, rehab costs and more to estimate monthly cash flow and gross/net yields. Investors can adjust these numbers in real time to see potential returns based on different auction bid amounts. Looking at a real market example, like Pensacola, can help to put things into perspective, especially when you compare that market to others across the country. Above is a “jitter plot” which looks at market data across the top 200 markets in the U.S. and shows how markets stack up against each other. The dark spots show where the Pensacola MSA ranks in each category within these top 200 markets. The first two columns show that rent (+36.5%) and home prices (+39%) have increased significantly compared to the other markets putting Pensacola in