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Housing Starts Misleading; More Duplex Analysis

Rates held again, as the market awaits news from the Fed meeting that adjourns today. Also the Consumer Price Index (CPI) rose 0.4% in February, meeting most analysts’ expectations. Remember that a little inflation is considered “healthy” in the short run, as many economists are currently concerned about deflation, or a loss of pricing power on the part of sellers. Deflation triggers less consumption, as consumers hold off on major purchases if they expect prices to fall further. We witnessed this very phenomenon in the housing market last summer.

Yesterday, we mentioned that Housing Starts were up in February by 22% and we wondered why. It turns out that Housing Starts include Apartments as well as Single Family Homes, and the 22% increase was over January’s numbers. And January’s numbers were so low that even the slightest spike in February would signal a large “increase”. So the “good news” of increased Housing Starts was somewhat misleading.

We are going to beat the Duplex Dead Horse a little more, but this time from an owner-occupied perspective. If you have a payment sensitive buyer with limited income, a duplex is once again a great way for them to get into the market. We say “once again” because income properties overall have come down in price significantly from their somewhat inflated values during the “boom”.

In our $140,000 example, discussed yesterday, with one unit rented for $1,295 per month, an owner-occupant buying the property and allowing the tenant to stay in the one unit could have his entire payment covered with the rent from the one unit. A 96.5% LTV FHA loan at 5% would yield a total housing payment (principal, interest, taxes, Insurance, MI) of under $1,050. A buyer of such a duplex would not only have his entire payment covered, he would actually make money from the single rented unit!

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167