Sold property in the city and looking to replace. Open to ideas, not liking what I am seeing so far. Will pay tax rather than buy something undesirable. Looking westside Portland, will be back at beach looking around. Not looking to expand just a little income or possible project.

Fannie and Freddie update

Fannie Mae is about to institute stricter underwriting criteria on investment properties, according to multiple media outlets. James Kleimann of HouseWire reports that starting April 1st, a number of new restrictions will take place including a 7% limit on Fannie Mae’s acquisition of single-family mortgage loans secured by a second home and investment properties. This is about half of Fannie Mae’s previous allocation.

The second major change, according to Aly Yale of Motley Fool, is that: “The new standards will require borrowers to go through the GSE’s Desktop Underwriter (DU) program...All second home and investment-backed loans will need to receive an Approve/Eligible recommendation through this program and have their loan delivered as an official DU loan in order to qualify. Fannie Mae plans to update its eligibility matrix to reflect all these changes next month, but currently, borrowers purchasing one-unit investment properties will need a down payment of at least 15% and a 620 credit score to qualify using the DU program.”

This is likely to affect more lenient lenders who relied on GSE backing previously, who are now limiting their exposure to investment properties. Expect investment loans harder to come by, and the credit score and LTVs more strict.

Jeff Lazerson of the Orange County Register made some interesting points about this announcement worth nothing:

Lenders may lose their appetites to make these loans because of a worry Fannie and Freddie will say no due to their new rental and second home loan allowances.
Many lenders “have already increased second-home financing by an average of 1.45 points. Investment properties took an average 1.65 points price hit.”
And, “you can be sure that even the behemoth lenders will eventually charge more for these so-called riskier loans.”

Couple these growing loan costs with rising interest rates, and we will likely see downward pressure on housing demand. According to Bank Rate, interest rates have hit short-term highs, tightening cash flows and making qualifications more difficult.

Source: Bank Rate

Single-family home (SFH) market

But the SFH market is showing no sign of slowing amidst record demand and low supply. Business Insider reported last week on the acquisition of Stessa by Roofstock and the new partnership with JLL, noting that:

"The announcement comes just months after JLL Capital Markets announced that it was launching a dedicated practice for single-family rentals, a first among the major real-estate service and brokerage firms. With the Roofstock partnership, JLL is staking its claim as the go-to partner for institutional investors in the single-family home world."

Supply woes still continue to plague the SFH—and overall residential—market. According to Diana Olick of CNBC, “Despite being on the cusp of the historically busy spring housing market, homeowners are not listing their properties for sale at the pace they normally would this time of year. The supply of homes for sale fell 29.5% year over year, the largest annual decline ever, to 1.03 million homes.”

Indeed, according to CEPro, SFH construction weakened 10.3% in February due to labor and material shortages. Permits also decreased during the same time period by 10.8%. Chuck Fowke, chairman of the National Association of Home Builders (NAHB), is quoted in the article as noting that "Despite strength in buyer traffic and lack of existing inventory, builders are slowing some production of single-family homes as lumber and other material costs, along with interest rates, continue to rise."

That said, over the 12 months we’ve seen a 36% increase in permits, but a delay in construction. This shows builders are struggling with material shortages on a national scale.

This also leads us to our next problem, the knock-on effects of mass SFH zoning. According to Wyoming Public Media, 75% of land across the U.S.’s biggest cities is earmarked for SFHs, leaving other housing classes vying for a small piece of the land bank. A solution? Laxing zoning laws to allow missing middle multifamily—duplexes, triplexes, and fourplexes. This not only improves supply, but creates new opportunities for real estate investors.

And, based on the above Fannie restrictions, they’ll need new opportunities!

Finally, like JLL and Roofstock, homebuilding giant Lennar Corporation is betting large on SFHs. According to Real Estate Weekly, the builder has formed a new venture called Upward America to put $1.25 billion in equity to work in the SFH rental market.

Reportedly, the Upward America program “will be positioned to acquire over $4 billion of new single-family homes and townhomes from Lennar and, potentially, other homebuilders, and rent them to households earning “approximately” the median income in each market.”

Portland, Oregon

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