ATTOM Data Solutions released its Q3 2017 US Home Flipping Report, which shows that single family homes and condos flipped in the third quarter yielded an average gross flipping profit of $66,448 per flip, representing an average 47.7% return on investment for flippers — down from 48.7% in the previous quarter and down from 51.2% in Q3 2016 to the lowest average gross flipping ROI since Q2 2015. The report also shows that 48,685 single family homes and condos were flipped nationwide in the third quarter, a home flipping rate of 5.1% — down from 5.6% in the previous quarter and unchanged from a year ago. Year-to-date through the third quarter of 2017 a total of 153,727 single family homes and condos nationwide have been flipped, nearly equal with the 153,854 flipped through the first three quarters of 2016, when the number of homes flipped increased to a 10-year high. For the report, a home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by ATTOM Data Solutions in more than 950 counties accounting for more than 80% of the US population. “Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip.”
The Q3 2017 home flipping rate increased from a year ago in 44 of the 93 metropolitan statistical areas analyzed in the report (47%), led by Baton Rouge, Louisiana (up 140%); Winston-Salem, North Carolina (up 58%); Salem, Oregon (up 51%); Indianapolis, Indiana (up 51%); and Buffalo, New York (up 47%). Along with Indianapolis and Buffalo, metro areas with a population of 1 million or more that posted a year-over-year increase in home flipping rates of at least 10% were Louisville, Kentucky (up 22%); San Antonio, Texas (up 22%); New York, New York (up 21%); Cleveland, Ohio (up 17%); Birmingham, Alabama (up 17%); Charlotte, North Carolina (up 15%); Dallas-Fort Worth, Texas (up 14%); Rochester, New York (up 13%); Detroit, Michigan (up 12%); Hartford, Connecticut (up 11%); and Memphis, Tennessee (up 10%). The Q3 2017 home flipping rate decreased from a year ago in 49 of the 93 metropolitan statistical areas analyzed for the report (53%), including Los Angeles (down 6%); Washington, D.C. (down 6%); Miami (down 15%); Boston (down 5%); and San Francisco (down 2%). “Across Southern California, investors are finding home flips for investment purchases to be a challenge due to an aging housing inventory requiring greater repair cost coupled with higher acquisition costs due to low available inventory,” said Michael Mahon, president at First Team Real Estate, covering the Southern California housing market. ‘That equates to increased risk for return on investment that is keeping many potential investors on the sidelines.” Other major markets where the Q3 2017 home flipping rate decreased from a year ago included Seattle (down 8%), Minneapolis-St. Paul (down 18%); Tampa-St. Petersburg (down 9%); Baltimore (down 2%); and Denver (down 2%). “Although the number of flips in the Seattle market dropped back to levels not seen since early 2016, they are still well above the levels seen before the recession. I anticipate that the number of flips will continue to fall as home price growth eats into profits, which have been on the decline since 2013,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “The Seattle region housing market remains very tight in terms of inventory and this has put substantial upward pressure on prices. Flippers can function to exacerbate this issue, so the sooner we see the number of flips drop back to pre-recession levels, the better.”
Counter to the national trend, average gross home flipping ROI in Q3 2017 increased from a year ago in 34 of the 93 metropolitan statistical areas analyzed in the report (37%), led by Baton Rouge, Louisiana (up 116%); Spokane, Washington (up 46%); Indianapolis, Indiana (up 35%); Fresno, California (up 34%); and Greensboro-High Point, North Carolina (up 34%). Metro areas with the highest average gross home flipping ROI for properties flipped in the third quarter were Pittsburgh, Pennsylvania (147.7%); Baton Rouge, Louisiana (122.2%); Philadelphia, Pennsylvania (114.0%); Baltimore, Maryland (101.5%); and Cleveland, Ohio (98.6%). Metro areas with the lowest average gross home flipping ROI for properties flipped in the third quarter were Austin, Texas (18.7%); Reno, Nevada (22.3%); Dallas-Fort Worth, Texas (22.7%); Kansas City (24.0%); and Salt Lake City, Utah (24.9%). With home flips representing 8.3% of all home sales in Q3 2017, the District of Columbia posted a higher home flipping rate than any state, followed by Nevada (7.6%); Tennessee (7.4%); Louisiana (7.4%); Alabama (7.1%); and Arizona (6.9%). Among 93 metropolitan statistical areas analyzed in the report, those with the highest home flipping rates in Q3 2017 were Memphis, Tennessee (12.0%); Baton Rouge, Louisiana (9.3%); York-Hanover, Pennsylvania (8.7%); Lakeland-Winter Haven, Florida (8.5%); and Tampa-St. Petersburg, Florida (8.5%).
Other high-level takeaways from the report:
– The 48,685 homes flips in Q3 2017 were completed by 38,928 investors, a ratio of 1.251 flips per investor, the lowest ratio of flips per investor since Q2 2008.
– The share of homes flipped in Q3 2017 that were purchased by the flipper with financing represented 34.6% of all homes flipped in the quarter, down from 35.5% in the previous quarter but still up from 32.3% in Q3 2016.
– The share of homes flipped in Q3 2017 that were purchased by the flipper in some stage of foreclosure or as bank-owned homes represented 38.8% of all homes flipped during the quarter, down from 40.2% in the previous quarter and down from 43.9% in Q3 2016.
– The average square footage of homes flipped in Q3 2017 was 1,405, down from 1,412 in the previous quarter to the smallest average square footage on record for the report, going back to Q1 2000.
– Homes flipped in Q3 2017 were purchased at an average discount of 23.9% below estimated full market “after repair” value, down from an average discount of 24.2% in the previous quarter to the lowest average discount since Q4 2013.
– Homes flips completed in Q3 2017 took an average of 181 days, down from 185 days in the previous quarter and down from 182 days in Q3 2016.
Jobs jump by 228K, 86th straight month of gains
US employers added 228,000 jobs in November, beating expectations for an increase of 200,000 jobs after several months of hurricane-related volatility from which the economy is still recovering. The unemployment rate remained unchanged at 4.1%, the lowest rate in nearly 17 years, and the labor force participation rate also stayed at 62.7% during the month. Average hourly earnings meanwhile increased from $26.53 to $26.55. The jobs numbers come on the heels of a report Wednesday from payroll processing firm ADP, which revealed that 190,000 private sector jobs were added in November, down from 235,000 in October. According to the report, manufacturing added 40,000 jobs, the most in the ADP series history, which launched more than 15 years ago. Meanwhile, the construction sector shed 4,000.
CoreLogic – homeowner equity increased by almost $871 billion in Q3 2017
– 260,000 Mortgaged Properties Regained Equity Between Q2 2017 and Q3 2017
– The Number of Underwater Homes Decreased Year Over Year by 0.7 Million
2.5 Million Residential Properties with a Mortgage Still in Negative Equity
CoreLogic released its Q3 2017 home equity analysis which shows that US homeowners with mortgages (roughly 63% of all homeowners) have collectively seen their equity increase 11.8% year over year, representing a gain of $870.6 billion since Q3 2016. Additionally, homeowners gained an average of $14,888 in home equity between Q3 2016 and Q3 2017. Western states led the increase, while no state experienced a decrease. Washington homeowners gaining an average of approximately $40,000 in home equity and California homeowners gaining an average of approximately $37,000 in home equity. On a quarter-over-quarter basis, from Q2 2017 to Q3 2017, the total number of mortgaged homes in negative equity decreased 9% to 2.5 million homes, or 4.9% of all mortgaged properties. Year over year, negative equity decreased 22% from 3.2 million homes, or 6.3% of all mortgaged properties, from Q3 2016 to Q3 2017. “Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This increase is primarily a reflection of rising home prices, which drives up home values, leading to an increase in home equity positions and supporting consumer spending.”
Negative equity, often referred to as being “underwater” or “upside down,” applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in a home’s value, an increase in mortgage debt or both. Negative equity peaked at 26% of mortgaged residential properties in Q4 2009 based on CoreLogic equity data analysis, which began in Q3 2009. The national aggregate value of negative equity was approximately $275.7 billion at the end of Q3 2017. This is down quarter over quarter by approximately $9.1 billion, or 3.2%, from $284.8 billion in Q2 2017 and down year over year by approximately $9.5 billion, or 3.3%, from $285.2 billion in Q3 2016. “While homeowner equity is rising nationally, there are wide disparities by geography,” said Frank Martell, president and CEO of CoreLogic. “Hot markets like San Francisco, Seattle and Denver boast very high levels of increased home equity. However, some markets are lagging behind due to weaker economies or lingering effects from the great recession. These include large markets such as Miami, Las Vegas and Chicago, but also many small- and medium-sized markets such as Scranton, Pa. and Akron, Ohio.”
Global banking regulator sends a warning to bitcoin investors
– Stefan Ingves, chairman of global regulators at the Basel Committee and governor of Sweden’s Riksbank, said investing in bitcoin was a “dangerous” prospect
– Bitcoin was trading at around $16,029 on Friday morning, according to industry site CoinDesk, after wild price swings in recent days
– “If you look at what has happened in the past when it comes to reaching those type of heights, being it tulip bulbs or a bunch of other things over the centuries, the odds are against those who actually think that this is going to be the future,” Ingves said
Bitcoin investors could learn a valuable lesson from the Dutch tulip bulb mania of the 1630s, according to a global banking regulator. When asked whether cryptocurrencies, such as bitcoin, had ignited any financial stability concerns, Stefan Ingves, chairman of global regulators at the Basel Committee and governor of Sweden’s Riksbank, told CNBC: “I think it’s wrong to call it a cryptocurrency, it’s crypto-something … Kind of a crypto-asset but definitely not a cryptocurrency.” Ingves said investing in bitcoin — as well as other similar instruments — was a “dangerous” prospect. He urged traders to be cautious because of strikingly high volatility levels and the clear lack of support from either central banks or international regulators. Bitcoin was trading at around $16,029 on Friday morning, according to industry site CoinDesk, after wild price swings in recent days. The digital currency rocketed above $19,000 on Thursday on the Coinbase exchange, before notching a huge decrease. The price on Coinbase, one of the major cryptocurrency exchanges accounting for a third of bitcoin trading volume, is often at a premium over other platforms. “If you look at what has happened in the past when it comes to reaching those type of heights, being it tulip bulbs or a bunch of other things over the centuries, the odds are against those who actually think that this is going to be the future,” Ingves said.
Ingves is not the first to compare bitcoin’s meteoric rise to the tulip craze — widely considered to be one of the first major financial bubbles. In the 17th Century, tulips became such a prized commodity that they were being traded on Dutch stock exchanges. And many people traded or sold possessions in a bid to get in on the action. But it all came to an end as a sudden drop in prices sparked panic selling. Tulips were soon trading at a fraction of what they once had, leaving many investors in financial ruin. Bitcoin’s dramatic uptick in market value means it would currently rank among the 20 largest stocks in the S&P 500 — with an estimated value of more than $250 billion. Meantime, on Thursday, financial regulators reached a long-sought deal to harmonize global banking rules. The Basel Committee — which consists of banking supervisors from the world’s top financial centers — agreed on new regulations to help strengthen banks in the wake of the financial crisis. The rules aim to ensure lenders across the world are consistent with how they manage capital levels and assess the measurement of risk. There is a “very high awareness” among international regulators of developments in the financial technology (fintech) sector “but it is a bit too early to say where that will take us when it comes to regulatory frameworks,” Ingves said. “Let me also stress that sometimes there is a bit of a hype when people talk about fintech, thinking that old fashioned banking is going to go away. But I don’t think that is going to happen because regardless of the technology available, in most countries we have had banks for hundreds and hundreds of years and most likely it is going to continue that way,” he added.
MBA – mortgage applications up
Mortgage applications increased 4.7% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 1, 2017. The prior week’s results included an adjustment for the Thanksgiving holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 4.7% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 47% compared with the previous week. The Refinance Index increased 9% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 38% compared with the previous week and was 8% higher than the same week one year ago. The refinance share of mortgage activity increased to its highest level since September 2017, 51.6% of total applications, from 48.7% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to its lowest level since January 2017, 5.7% of total applications. The FHA share of total applications increased to 11.1% from 10.8% the week prior. The VA share of total applications decreased to 10.7% from 11.0% the week prior. The USDA share of total applications remained unchanged from the week prior at 0.8%.
CoreLogic – US economic outlook: December 2017
A central theme for the 2018 housing market will be the continuing erosion of housing affordability, an issue that will permeate a growing list of American neighborhoods. Today housing affordability is already a major concern in many high-cost markets, and will spread to more moderate-cost places across the nation. Let’s look at the economic factors that we expect will further weaken affordability in the coming year.One is the projected rise in interest rates. The Federal Reserve has signaled its plan to increase its federal funds target, pushing other short-term interest rates up including initial rates on ARMs, and to reduce its portfolio of long-term Treasury and mortgage-backed securities. And while fixed-rate mortgage rates remain at historically low levels, they are already up about three-fourths of a percentage point above their record low. Fixed-rate loans are forecast to rise in 2018 by at least one-half a percentage point to as much as a full percentage point. A second factor is the increasing price of buying a home. CoreLogic’s national Home Price Index has been rising at a 6% or better clip over the past year with less expensive homes rising even faster. When combined with the rise in mortgage rates, the price increase for lower-priced homes translates into approximately a 15% rise over the last year in the monthly principal and interest payment for a first-time buyer. We expect this trend to continue in 2018, with the CoreLogic Home Price Index for the US up another 5%. Third, we expect the very low for-sale inventory, especially for ‘starter’ homes, to continue. As low inventory confronts the rising desire for homeownership by a growing number of millennials, home sale conditions will favor the seller with low time-on-market, multiple contracts per home, and more homes that sell at or above list price. These phenomena will be particularly acute in the first-time buyer segment, where there is already a shortage of for-sale inventory. Declining affordability can be alleviated by new construction and rehabilitation of older housing stock. We expect housing starts to increase 5% in 2018, but more building is necessary to alleviate the affordability challenges in many higher-cost American cities.