House Flipping Hits 10Y High:
Rising home prices are bringing more house flippers out of the woodwork. The number of active home flippers last year was the highest in nearly a decade, and it is only growing.
Nearly 180,000 family homes and condos were flipped in 2015, according to RealtyTrac. A flip is defined as a home that is bought and sold again within the same 12 months. Flips made up 5.5 percent of all sales last year, and that is the first increase in the flip share after four years of shrinking. Flipping increased in 75 percent of U.S. markets, and the profits are growing as well.
This serves an important role in a market with extremely tight inventories. These homes are revitalized and added to the inventory pool.
Prices are rising fast, not because buyers can afford to pay more but because of extremely short supply of homes for sale, especially on the lower end of the market. Home prices in January were 6.9 percent higher than the January 2015, according to CoreLogic, a higher annual gain than in December. Home flipping can push prices even higher, especially in markets with the tightest inventory.
As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac. “Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year.”
Flippers are watching home prices rise, and in turn seeing returns rise. Homes flipped in 2015 yielded an average gross profit of $55,000 nationwide, the highest for flips nationally since 2005, according to RealtyTrac. The return on investment was close to 46 percent, up from 44 percent in 2014 and up from 35 percent in 2005. 2005 was when flipping was rampant, thanks to super easy credit. Back then, over 8 percent of all sales were flips.
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 3.00 MBS) lost -33 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher sideways from the prior week. It was our second straight week of declines in MBS (higher rates).
We had a 76 basis point spread between our lowest MBS pricing (highest rates) on Friday and our highest MBS pricing (lowest rates) on Tuesday, that volatility was mostly due to fluctuations in Oil prices.
Texas Tea, Black Gold: WTI Oil prices continues to be a major factor in our pricing and rates. Lower Oil prices are really a proxy now for bond traders to bet/hedge on the timing of the next rate hike by the Federal Reserve. As Oil stays close to $30 or below, it prolongs our time at these uber low mortgage rates as traders are pricing in zero chance of a rate hike this year due to no inflation. But as Oil moves towards $35 per barrel, MBS start to sell off as it opens the window (at least in trader’s minds) of a rate hike or two this year. Last week WTI Oil moved from $32.32 on Monday all the way up to $36.34 on Friday and that was the prevailing force in the downward pressure on MBS trades last week.
As you can see by the different colors, this is a mixed bag. Certainly the fact that more and more American’s are working (NFP gains now average 228K over the past three months) is an overall positive for our economy and the labor market in general. While the headline Average Hourly Wages (MOM) was weaker than expected…..it was not really that weak. The overall number only fell 0.3 cents to $25.35 and the private-sector data remained unchanged at $21.32. And on a yearly basis, wages are still up over 2%. So..this is slightly weaker than expected wage data…but it is not actually weak data.
ISM Non-Manufacturing: This is by far, more important that the ISM Manufacturing reading as it accounts for almost 80% of our economy. Just like the Manufacturing data, this was a tad better than expected (53.4 vs est of 53.2), so a nice and healthy level but not by enough to move the needle on pricing.
Manufacturing: We had two reports hit this morning and both were better than expected. The Markit Feb PMI reading hit 51.3 vs est of 51.0 and our more closely watched ISM Feb reading hit 49.5 vs est of 48.5. This was a healthy beat to the upside even though it is still below the 50.0 demarcation. It also was a nice gain over January’s 48.2. This positive momentum in manufacturing was certainly negative for pricing.
|What to Watch Out For This Week: