House Flippers Seeing Record Returns
House flipping may not be as popular as it was just a year ago, but for those willing to risk it, there are now record rewards. Four percent of home sales in the first quarter of this year were flips, according to RealtyTrac, which defines a flip as a home that is bought and sold again within a 12-month period. That comes to just 17,309 flips, which is the lowest share since the middle of 2011.
The average gross profit on a flip, however, soared to $72,450, up from $61,684 in the first quarter of 2014. That is the highest profit since this survey started in the beginning of 2011, and is attributable to tight supply in the housing market, which is pushing prices higher faster.
“The strong returns for home flippers in the first quarter demonstrates that there is still a need in this recovering real estate market for move-in ready homes rehabbed to more modern tastes, particularly given the dearth of new homes being built,” said Daren Blomquist, vice president at RealtyTrac.
Flips are now giving investors an average gross return of 35 percent, but with prices higher, investors are discovering it’s increasingly difficult to find properties that will make good flips. Certain markets are offering much better odds.
Witness the strong flip returns as reported by RealtyTrac: Tampa, Florida (57.2 percent), Pittsburgh (55.2 percent), Memphis, Tennessee (54.8 percent), Chicago (52.9 percent), Seattle (49.0 percent), New York (47.1 percent), Washington, D.C. (44.2 percent) and Boston (44.0 percent).
Another change in the landscape is house flippers increasingly are selling their homes to other investors or to second homebuyers. This may be due to the very strong single-family rental market and large-scale institutional investors who have now established management structures and are looking for turnkey homes to rent.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -28 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to higher. We had another very volatile week with very large swings in pricing with a net difference of -159BPS from our intraday high to our intraday low.
We started the week with a big selloff that shed all off the positive momentum that we saw the prior week on Jobs Friday. And per usual, we had another mixed bag of economic data that showed economic growth but gave economists and traders alike cause for concern.
The small business optimism index (NFIB) improved from 95.2 to 96.9 but the University of Michigan’s Consumer Sentiment Index dropped from 95.9 to 88.6. Initial Weekly Jobless Claims hit its second lowest reading since 1973 and the JOLTS report showed continued demand for employees with 5.00 million job openings ready to be filled.
Headline Retail Sales came in flat (0.0%) and when strip out autos, we saw a small month-over-month gain of just 0.1%. The Producer Price Index showed no threat of inflation in the immediate term.
We saw very strong demand for our 10 year Treasury note auction and our 30 year Treasury bond auction. However it came at a price as we had to pay a higher interest rate to attract purchasers of our long term debt.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|18-May||10:00 AM||NAHB Housing Market Index||–||57||56|
|19-May||8:30 AM||Housing Starts||–||1019K||926K|
|19-May||8:30 AM||Building Permits||–||1065K||1039K|
|20-May||7:00 AM||MBA Mortgage Index||–||NA||-3.50%|
|20-May||10:30 AM||Crude Inventories||–||NA||-2.191M|
|20-May||2:00 PM||FOMC Minutes||–||–||–|
|21-May||8:30 AM||Initial Claims||–||270K||264K|
|21-May||8:30 AM||Continuing Claims||–||2250K||2229K|
|21-May||10:00 AM||Existing Home Sales||–||5.24M||5.19M|
|21-May||10:00 AM||Philadelphia Fed||–||8||7.5|
|21-May||10:00 AM||Leading Indicators||–||0.30%||0.20%|
|21-May||10:30 AM||Natural Gas Inventories||–||NA||111 bcf|
|22-May||8:30 AM||Core CPI||–||0.20%||0.20%|
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.