MReport March 2020

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16 | M R EP O RT COVER STORY to spur economic development and job creation with long-term investment in low-income com- munities across the nation. Areas designated Opportunity Zones are census tracts determined by state executives to be most in need of private investment. During the State of the Union Address on February 4, President Donald Trump said jobs and investments are "pouring" into roughly 9,000 "previously ne- glected neighborhoods" due to Opportunity Zones. "Wealthy people and com- panies are pouring money into poor neighborhoods or areas that haven't seen investment in many decades, creating jobs, energy, and excitement," Trump said. "This is the first time that these deserving communities have seen anything like this." Information from found that in the Q2 2019 Seller Strategy Report that homes in Opportunity Zones sold at an average price point that was 24% below the average price outside of these zones. However, ATTOM Data Solutions' Q 3 2019 Opportunity Zones Report said that nearly half of Opportunity Zones saw median home prices rise more than the national increase of 8.3% from Q 3 2018 to Q 3 2019. "On its face, this is a good sign for homeowners in these zones, as it raises their property values and reflects a continued economic ex- pansion in the residential housing market," said Josh Stech, CEO of Sundae, a residential marketplace for dated and distressed houses. "It also shows that homebuyers are more open to transitional areas in order to find better value, which helps bring the value of these areas up and evens out the overall market." Stech added the incentive of Opportunity Zones is not to re- strain homes prices within them, but rather to "better balance the broader market." "Naturally, by improving these communities, there will be an increase in demand, which does carry the possibility of raising prices," Stech said. "In doing so, we can expect some decrease in demand amongst other, overpriced neighborhoods. Homebuyers are ultimately provided with more options at better prices overall." ATTOM Data Solutions' Q 3 2019 Opportunity Zones Report said that nearly half of Opportunity Zones saw median home prices rise more than the national increase of 8.3% from Q 3 2018 to Q 3 2019. Daren Blomquist, VP, Market Economics,, said home prices increasing in these areas is evidence that the housing recovery is expanding to lower income neighborhoods. "Certainly that could be seen as a negative," Blomquist said. "I see it mostly as a positive, because you're seeing this economic and housing recovery extend more broadly to neighborhoods that in the past may have been over- looked or left out of these types of recoveries." Blomquist added that these zones could be witnessing a "late- cycle housing boom" and that investors may think twice before committing funds to these areas. He noted that low-income areas are usually "the first ones to fall" during an economic downturn. "One thing about the opportu- nity zones is, theoretically, these should help to better insulate these neighborhoods against that more volatile type of pattern that we sometimes see in a typical housing cycle," Blomquist said. Elizabeth Balce, EVP, Loan Servicing, Carrington Mortgage Services, said rising home prices are a challenge in many cities across the nation, but noted that, in Opportunity Zones, munici- palities are still in charge of the development. "This isn't necessarily a feder- ally mandated program; it's a change in the tax code," Balce said. "So cities can continue to regulate at the local level to encourage, or fast-track approval of projects that most benefit their community." Balce said that reasons for price could be caused by several factors including, but limited to, job creation, growing incomes, or Opportunity Zones. She noted that home prices should not be the lone economic indicator, as she ref- erenced a study that found prices of depreciated property and vacant land increasing inside Opportunity Zones, but not all prices in the areas were depreciated. "Ideally that would mean exist- ing home prices have stayed more affordable, and additional housing is being brought back onto the market, or being created from underutilized properties," Balce said. "But I don't know that that's a definitive correlation, but that's certainly something we can hope to draw from it." Martin Muoto, Managing Partner, Sola Impact, is focused on investing in Opportunity Zones in historically neglected areas in Los Angeles—South Central, Watts, and Compton. He said the legislation was passed to drive capital into areas that have been capital starved, many of which has been neglected for three or four decades. "I pushed back fairly strongly on the folks simply throwing stones from glass houses. How's this going to hurt this commu- nity? I've spent 10 years invest- ing in South L.A. Come down, spend the time. Walk the streets, speak to the residents, and you'll see that this community desper- ately could do with improved economic infrastructure," he said. "The Opportunity Zone is perhaps the most direct way that that economic infrastructure can be built." Blomquist told MReport that Opportunity Zones may have an indirect impact on those entering the housing market, as it works to lift certain neighborhoods. "The impact I see with first- time home buyers is someone who might've unfortunately avoided those neighborhoods in the past and said, 'I don't want to buy there because the value of my home could actually decrease if I buy.' They're considered a little more risky," Blomquist said. "That potential first-time home buyer may take a second look at proper- ties in these neighborhoods and "You're going to see more and more Opportunity Zones come out, and we're going to see a lot more investors take advantage of the legislation." —Martin Muto, Managing Partner, Sola Impact

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