report

Apache is functioning normally

The average U.S. mortgage rate for a 30-year fixed loan fell to 2.8% this week, another record low, Freddie Mac said in a report on Thursday. The rate fell one basis points from the week prior and is now six basis points lower than the original all-time low set in mid-September.

The average fixed rate for a 15-year mortgage was 2.33%, falling from last week’s 2.35%.

After this week’s dip, there have now been 13 consecutive weeks when average mortgage rates have been below 3%, and rates have broken records 11 times this year.

“Mortgage rates remain very low, providing homeowners who have not already taken advantage of this environment ample opportunity to do so,” said Sam Khater, Freddie Mac’s chief economist. “Mortgage rates today are on average more than a full percentage point lower than rates over the last five years.”

In March, in an effort to buffer the economic blows from the shutdown, Federal Reserve Chairman Jerome Powell announced the Fed would start buying bonds to prevent a credit crunch and make borrowing cheaper. According to Fed data, the central bank has bought over $1 trillion in bonds backed by home loans since then.

While purchase loans are seeing record-low rates, the adverse market fee imposed on refinance loans by the FHFA in August make record lows for those loans unlikely.

During this week’s Mortgage Bankers Association annual event, the heads of Fannie Mae and Freddie Mac discussed the adverse market fee.

“As you know, safety and soundness is one, two, and three for us,” said Fannie Mae CEO Hugh Frater. “And for us to play our role in all markets, good and bad, markets small and large, we have to do it safely and soundly with long-term risk management in mind. And that’s the rationale for this change, as the GSEs are shouldering significant risks associated with the pandemic — as the principal risk taker, we have to price that risk appropriately.”

He added that while the housing market has demonstrated real resiliency, “many millions of borrowers are under stress, there’s still significant risk caused by economic uncertainty both in the near term and the longer term. And we’re required by law and regulation to be compensated for these risks and these costs.”

Freddie Mac CEO David Brickman struck a similar tone, saying that the GSEs have provided “extraordinary support” to the market.

“Costs have changed, risks have changed. What we put in place is an appropriate and prudent response to that change in the external environment for us to support struggling homeowners.”

They both noted that with interest rates still low, borrowers will realize savings, even with the 50 basis point refinance fee factored in. “But obviously, anybody who’s refinancing their mortgage at a lower rate is already beginning to save in terms of their mortgage payments, this only means they save just a little bit less than they would have otherwise,” said Brickman.

Source: housingwire.com

Apache is functioning normally

Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research may determine where and how companies appear. Learn more about how we make money.

For months, experts have been sounding the alarm about how Americans who took out mortgages when rates were low are reluctant to sell and borrow now that they’ve skyrocketed.

New research, however, has found there is a magic number that makes homeowners more motivated to move.

A June survey of 1,815 homeowners from real estate listing site Zillow found that homeowners with mortgage rates 5% or higher were significantly more likely than those with lower rates to say they plan to sell. As home listings tick down amid today’s elevated rates, the findings suggest that supply could increase again in the coming years.

What the data says

Homeowners with mortgage rates 5% and up were twice as likely to say they plan to sell their homes in the next three years than those with rates under 5%. Among homeowners who said they have plans to sell, almost half paying mortgage rates above 5% said they already have their house listed for sale. (Only 20% of homeowners paying rates below 5% said the same.)

For perspective, about 80% of mortgage borrowers said their current rate is below 5%, and 90% have a rate under 6%. Nearly a third said their rate was less than 3%.

Of homeowners with higher mortgage rates who said they were thinking about selling, 65% said rates were an influencing factor. About 35% of lower-rate homeowners said the same.

Keep in mind, though, that factors other than mortgage rates can play a role in a homeowner’s choice. The survey found that fewer than half (42%) of all homeowners thinking about selling said that mortgage rate fluctuations were a reason they decided to move.

What it means

Mortgage rates are hovering around 7% at the moment, and most homeowners would have to take out new mortgages at a higher rate if they were to move. According to Zillow, the ordinary monthly mortgage payment is now twice what it was in 2020, when rates were at historic lows.

Homeowners who took out mortgages when rates were lower could pay hundreds more a month if they take out a new mortgage right now. It’s no surprise that, as a result, homeowners are reluctant to move and locked into their current rates.

Mortgage rate locks push home prices up and listings down, creating a challenging market for buyers. Zillow’s June housing market report found that there were 28% fewer new for-sale listings compared to the same time last year.

Home values have climbed in all the 50 largest metropolitan areas, bringing the typical U.S. home price to more than $350,000. Another recent report from real estate listing site Redfin found that homebuyers have lost $60,000 in purchasing power in the last year. Mortgage rates are so high that “many homeowners will move only for major life events, like a new baby or retirement,” Orphe Divounguy, a senior economist at Zillow Home Loans, said in a news release.

Despite the difficult circumstances, Zillow says its analysis offers hope that more homes could hit the market in the next few years as homeowners accept higher rates as the new norm. About 23% of homeowners surveyed said they were thinking about selling in the next three years or already have their home listed. Among homeowners with a mortgage rate above 5%, 38% said they would consider selling their home in the next three years.

Ads by Money. We may be compensated if you click this ad.Ad

Getting creative

Additional research from Zillow Home Loans also found that buyers are finding creative ways to cope with high mortgage rates.

A separate survey released in April found that 45% of all buyers are purchasing mortgage points — which allow buyers to pay a fee to buy down the interest rate on a loan — to lower their interest rate. They’re also opting for smaller, cheaper homes and keeping an open mind when it comes to their wish lists.

More from Money:

Foreclosures Are on the Rise in These 10 U.S. Cities

Housing Market Forecast: Will Home Prices Drop in 2023?

Property Values Might Fall Soon — Here’s What Homeowners Can Do to Prepare

Source: money.com

Apache is functioning normally

Mortgage rates accelerated past 7% for the first time since November, landing at its highest level since 2002, according to Freddie Mac’s weekly Primary Mortgage Market Survey.

The average 30-year mortgage rate came in at 7.09% for the seven-day period ending Aug. 16, up 13 basis points from 6.96% a week earlier. The current level now stands close to two percentage points higher from the 5.13% average reported a year ago. The latest rise also marks the fourth straight week of increases in the 30-year rate.

The last time the 30-year average was as high in Freddie Mac’s survey was April 2002 when it stood at 7.13% Since finishing 2021 at 3.11%, the 30-year rate has shot up almost 4% in 20 months.

Experts pointed to the effect recent economic data had in driving rates higher. “The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Sam Khater, Freddie Mac’s chief economist, in a press release. 

Similarly, the 15-year average jumped up 12 basis points to 6.46% compared to 6.34% seven days ago, according to Freddie Mac. In the same weekly period 12 months ago, the 15-year rate came in at 4.55%.

Strong retail data over the past week helped fuel additional upward movement after the Federal Reserve announced a 25-basis point hike in the federal funds rate in July, according to Orphe Divounguy, senior macroeconomist at Zillow Home Loans. The retail sales report “showed that U.S. consumers continue to spend despite higher interest rates and inflation, which remains elevated despite continuing to cool,” Divounguy said in a research statement. 

Signs of a robust economy will keep upward pressure on Treasury yields and mortgage rates, which often move in tandem, Divounguy added.

Yields on the 10-year Treasuries showed a mostly steady climb upward over the past week. On Aug. 10, yields came in at 4.02% but began trading Thursday at 4.29%, rising to 4.31% by 12 noon.

But the recent upswing in the 30-year average also comes as productivity, wage and jobs data could cause the Fed to take the foot off the gas pedal in its inflation fight, “something that could offer some much needed relief for interest rates, Divounguy added. 

“But for now, upside inflation risk remains and this week’s release of the Fed’s meeting minutes revealed rate hikes may still be on the table,” he said.

Earlier this week, the Mortgage Bankers Association also reported average 30-year interest rates among its members leaping to their highest mark in more than two decades for conforming loans. However, rates for Federal Housing Administration-backed mortgages pulled back below 7%, with volumes rising for applications sponsored by the agency. The increase “could indicate that some buyers remain active in their home buying search despite higher rates,” said MBA President and CEO Bob Broeksmit in a statement. 

But larger market forces continue to cap the extent buyer activity can currently grow, with costs also expected to remain elevated through next year, according to analysts at Moody’s Investors Service.

“Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales,” Freddie Mac’s Khater said.

Source: nationalmortgagenews.com

Apache is functioning normally

Pricing, Internal Audit, CRM, Home Insurance, Lead Generation Tools; Comp Survey; MBA’s Cost Per Loan Stats

<meta name="smartbanner:author" content="We now have a native iPhone
and Android app.
Download the NEW APP”>


This website requires Javascrip to run properly.

Pricing, Internal Audit, CRM, Home Insurance, Lead Generation Tools; Comp Survey; MBA’s Cost Per Loan Stats

By:
Rob Chrisman

Fri, Aug 18 2023, 10:49 AM

As numbers approaching a thousand head to Orange County, CA, for the California MBA’s Western Secondary, keeping an eye on the remnants of a hurricane, it is not an easy lending environment with mortgage rates at 20-year highs, firmly in the 7’s. Thomas Edison believed, “Vision without execution is hallucination.” Many owners of lenders and vendors had very good vision and execution some years ago when creating their companies. But thinking that 2020 and 2021 would continue indefinitely would have been classified as a hallucination, and obviously things have become much more difficult with many wondering where things go from here. I don’t have a crystal ball, but a certain percentage of those owners who deferred being serious about exploring a sale, waiting, until after the cycle was obviously on the downside, they’ve perhaps undermined an opportunity for negotiating more favorable deal terms. It can be argued that the smarter entrepreneurs engaged in company sale negotiations while industry mindset is mostly driven by prosperity. (Today’s podcast can be found here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades.)

Lender and Broker Software and Services

“No time for social media marketing? Introducing… Social Media Marketing for Busy Loan Officers. Tired of stressing over what to post on Facebook or LinkedIn? Want to grow your audience on Instagram without spending hours each week crafting the perfect post? With Be Loangendary, we do all of it for you. Here’s how: 1) Our team of mortgage copywriters and designers craft your social posts every week. 2) Once they’re perfect, we schedule and post to your social accounts. 3) You sit back, relax, and watch the “likes” start rolling in. With Be Loangendary, you get engaging mortgage content without breaking a sweat. That’s social media done for you. Want to get started? Enjoy a 14-day free trial on us!”

“Salesforce is committed to partnering with mortgage lenders to drive their technology transformation with modern solutions that are already in practice and serving many of the top mortgage lenders in the country. As part of its efforts to drive the industry forward through the adoption of a modern tech stack, Salesforce identified UMortgage to establish the precedent of utilizing its mortgage and lending software to its fullest potential to facilitate better client experiences. Using customized task management systems and automations within Salesforce, UMortgage has been able to achieve 300% year-over-year growth and near-perfect 95 net promoter score (NPS), an indicator of a best-in-class client experience. Check out the following link to learn more about the innovative technological systems that are helping UMortgage Loan Originators maximize their lead generation & conversion. With an investment in intuitive solutions, UMortgage is driving the mortgage industry towards a better future that enables brokers to thrive.”

We’re hearing that lenders are ramping up their tech stacks and (most importantly) focusing on the quality of the data powering that technology. If you’re considering taking your company’s tech stack to the next level, look for a property data provider that delivers the most comprehensive data through the best channels to meet your unique business needs. That’s why we’re highlighting First American Data & Analytics and its repository of more than 8+ billion recorded documents. First American is more than just a data provider. It offers end-to-end solutions for the mortgage lifecycle. From detecting fraud and risk to providing valuation solutions, First American powers lenders to make informed, data-driven decisions. If you’re ready to have access to the most accurate, complete, and current data, reach out to the team and get a data sample now.

“Lenders, the home insurance market is facing unprecedented volatility. We want to hear if it’s affecting your business and the closing process. Take our five-minute survey to share your thoughts. As a thank you, you can select to be entered to win a $100 Amazon gift card, compliments of Matic Insurance. Click here to begin the survey. Matic is a home insurance marketplace built for the mortgage industry. Learn how mortgage enterprises can implement a new revenue stream that helps borrowers navigate the insurance buying process. Book a demo today.

Wholesale lending is undergoing a transformation that will leave those who cling to outdated processes behind. Using bargain CRMs as electronic phone books or even worse, spreadsheets to track brokers, is a clear sign that your sales process is holding you back. Modern CRM technology like OptifiNow provides a comprehensive, out-of-the-box solution that helps wholesale lenders create a sales and marketing process that drives broker engagement and significantly increases loan volume. Download our guide to finding the right CRM for wholesale lenders to learn how to transform your wholesale business and stay ahead of the competition!

What’s an internal audit anyway and do you need one? An internal audit acts as a third line of defense for your mortgage operation. It provides comprehensive assurance based on the highest level of independence and objectivity to evaluate the effectiveness of management’s internal controls. This function should advise your mortgage operation on plans to achieve the company’s strategic, operational, financial and compliance goals. An effective internal audit should go far beyond just checking a compliance box; it should be an integral part of protecting your company. If you want to ensure you’re adhering to regulatory requirements and demonstrating good faith business practices, a Richey May internal audit is a good fit. If you’re looking to be Fannie Mae approved in the future or want to maintain your approved status, it’s required. If you’re unsure whether you need an internal audit, ask one of Richey May’s experts today or learn more here.

Pricing Products and Programs

“Lender Price introduces Composable Pricing UI, an innovative user interface that empowers lenders to effortlessly customize their pricing engine using No Code or Low Code options. With a variety of skinning options and increased flexibility, Lender Price users can now easily create a personalized pricing experience with an abundance of options to choose from. Surpassing the limitations of single UI platforms seen with competitors, the era of rigid, one-size-fits-all PPE’s is over. With a flexible pricing engine like Lender Price, users now have the ability to tailor their interface based on their individual needs and preferences. Composable UI represents a paradigm shift in digital lending technology UX, liberating both individuals and organizations from the constraints of single UI platforms,” said Dawar Alimi, Lender Price CEO. “With an abundance of options and unparalleled flexibility, users can personalize and take charge of their pricing experience.” Email us or request a demo today.”

In this market, hustle is everything. You can’t afford to waste a single deal or a single minute. That’s why ReadyPrice has launched its innovative new Shop, Lock & Deliver loan exchange platform, designed to help independent mortgage brokers like you save time and money. Now you can shop competitive loan offerings from multiple lenders, get rate lock guarantees in real time, receive underwriting findings, and deliver the borrower’s complete loan file to lenders and all on a single platform, at no cost to brokers. It’s the industry’s most powerful universal delivery portal, and it’s already helping brokers around the country thrive and compete in even the toughest market environments. Multiple lenders. One platform. Zero b.s. Check ReadyPrice out today.

STRATMOR Comp Information and Survey

Yesterday I published, “What do underwriters and processors and LOs make? STRATMOR has the information, spelled out in a recent Perspectives piece.” Several wrote to say that there is a wide disparity in pay based on experience, at every level, and that averages may not be telling the whole story. Point well taken, although the drop in volume/units has not been matched by the drop in personnel. Stay tuned…

Information is critical in making payroll decisions. STRATMOR Group’s Compensation Connection® Study provides valuable insight into compensation components, incentive plan structures, role specifics and more, aggregated by company type, annual volume, and region. Prior three-year trending is also included on most metrics. Get the compensation data you need: sign up for the Fall 2023 Compensation Connection® Study today!

Lenders can Relive the 2nd Quarter of 2023

Spoiler alert: Losses continue but at a slower pace. The MBA has crunched the numbers of those surveyed and calculated that independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a pre-tax net loss of $534 on each loan they originated in the second quarter of 2023, an improvement from the reported loss of $1,972 per loan in the first quarter of 2023.

Marina Walsh, CMB, MBA’s Vice President of Industry Analysis and overall good person, summed up the Quarterly Mortgage Bankers Performance Report. “After 11 consecutive quarters of increases, origination costs declined by over $2,000 per loan. Volume picked up during the spring homebuying season and additional personnel were shed. However, the substantial cost savings per loan was not enough to put the average net production income in the black… Production losses were less severe than the previous two quarters and net servicing financial income was strong. Additionally, most mortgage companies in our survey managed to squeeze out an overall profit during one of the toughest times for the mortgage industry.”

Once again, servicing income helped big time. Think about that as companies sell it off. When the MBA looked at both production and servicing, 58 percent of companies were profitable last quarter, an improvement from 32 percent in the first quarter of 2023 and 25 percent in the fourth quarter of 2022. Still, the average pre-tax production loss was 18 basis points (bps) in the second quarter of 2023, compared to an average net production loss of 68 bps in the first quarter of 2023, and down from a loss of 5 basis points one year ago. The average quarterly pre-tax production profit, from the third quarter of 2008 to the most recent quarter, is 47 basis points.

“Total production revenue (fee income, net secondary marketing income and warehouse spread) decreased to 328 bps in the second quarter, down from 358 bps in the first quarter. On a per-loan basis, production revenues decreased to $10,510 per loan in the second quarter, down from $11,199 per loan in the first quarter.

“The purchase share of total originations, by dollar volume, increased to a study high of 89 percent in the second quarter. For the mortgage industry as a whole, MBA estimates the purchase share was at 80 percent in the second quarter, with the average loan balance for first mortgages increasing to $343,386 in the second quarter, up from $329,159 in the first quarter.

It ain’t cheap to do a loan. “Total loan production expenses (commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations) decreased to $11,044 per loan in the second quarter, down from a study-high $13,171 per loan in the first quarter of 2023. From the third quarter of 2008 to last quarter, loan production expenses have averaged $7,236 per loan.

“Servicing net financial income for the second quarter (without annualizing) was $94 per loan, up from $54 per loan in the first quarter. Servicing operating income, which excludes MSR amortization, gains/loss in the valuation of servicing rights net of hedging gains/losses, and gains/losses on the bulk sale of MSRs, was $105 per loan in the second quarter, up from $102 per loan in the first quarter.”

For all the stats, there are five Mortgage Bankers Performance Report publications per year: four quarterly reports and one annual report. Contact Falen Taylor (202-557-2771). The reports can also be purchased on the MBA’s website.

Capital Markets

At this point it can be argued that the Fed doesn’t want to see higher long-term rates. But bond yields continue to rise across the board, impacting mortgage rates of course, continuing an upswing that began nearly three months ago at the beginning of the summer. In fact, the yield on the benchmark 10-year Treasury (US10Y) closed at 4.25% on Wednesday, the highest level since 2008. The upward march this week follows the release of the latest Federal Open Market Committee minutes, which stressed that additional interest rate hikes might be needed.

“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy… Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening... and emphasized the importance of communicating as clearly as possible about the Committee’s data-dependent approach to policy and its firm commitment to bring inflation down to its 2% objective.”

Stronger-than-expected economic data continues to pour in, helping stock market prices, especially if you think the Fed to end its hiking cycle soon. Others say 10-year yields above 4 percent still present a good buying opportunity, in contrast to the potential rewards from pricey stocks and multiples that might not be as appealing. But it seems that bond investors have shifted to a “higher-for-longer” narrative coming out of the Fed, causing nominal rates and real rates to keep moving higher. Not good for housing affordability.

Strong economic data continued yesterday with initial jobless claims -11k and Philly Fed beating expectations by 22 points. That helped to lift benchmark 10-year U.S. Treasury yields above 4.30 percent as MBS once again sold off across the coupon stack. The recent surge in U.S. mortgage rates to anywhere between 10-month and two-decade highs, depending on who you ask, has pushed housing affordability to the lowest level in nearly four decades. Yesterday also brought another troubling sign for the Chinese economy as Beijing authorities are said to have told state-owned banks to step up intervention in the currency market in a push to prevent a surge in yuan volatility.

With no major data releases or Fedspeak today, the market will be left to its own devices. We begin the day with Agency MBS prices better from Thursday afternoon by .250, the 10-year yielding 4.22 after closing yesterday at 4.31 percent, and the 2-year at 4.91: yield curve inversion is alive and well without a recession.

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

The average U.S. mortgage rate for a 30-year fixed loan remained steady this week, gaining one basis point to 2.81%, Freddie Mac said in a report on Thursday. The average fixed rate for a 15-year mortgage was 2.32%, falling from last week’s 2.33%.

After this week’s dip, there have now been 14 consecutive weeks when average mortgage rates have been below 3%. According to Freddie Mac’s chief economist, Sam Khater, low rates have provided tangible support to the economy at a critical time.

“Strong purchase demand is helping to lift the construction, manufacturing and transportation industries that build new homes and it is also leading to more consumer spending for owners, who are selling or improving their
homes,” said Khater. “On the refinance front, many consumers are smartly taking advantage of the ability to lower their monthly payment, which means they can spend, save or pay down debt more so than they have in the past.”

The Federal Reserve began buying bonds in March to buffer the shutdown’s economic blows and make borrowing cheaper, and consistently low and steady mortgage rates have pushed homebuyers to flood the market. On Wednesday, Case-Shiller’s home price index for August jumped 5.7% – the greatest year-over-year gain since 2018.

According to Mike Fratantoni, chief economist of the Mortgage Bankers Association, today’s GDP data shows a picture of the economy re-opening and restocking over the summer.

Untying business growth from the housing market cycle

Lenders need to be able to grow their business in a way that is not linear and is not tied to the market cycles – leveraging automation technology can help.

Presented by: Indecomm Global

“MBA expects that the pace of economic growth will slow in the fourth quarter and into next year, but expansion should nonetheless continue, provided the current spike in virus cases does not lead to another complete lockdown,” Fratantoni said.

While one end of the market continues to flourish from demand, 34% of home sellers said they are staying out of the market due to COVID-19’s uncertainty in a recent Zillow survey, and approximately 3 million homeowners are currently in forbearance plans, according to the MBA.

“This is further evidence of the unevenness in the current economic recovery,” said Fratantoni. “The housing market is booming, as shown by the extremely strong pace of home sales last week. However, many homeowners continue to struggle, as the pace of the job market’s improvement has waned.”

Source: housingwire.com

Apache is functioning normally

Loan modifications carried out by mortgage financiers Fannie Mae and Freddie Mac surged since their government takeover, according to the FHFA’s November Foreclosure Prevention Report released today.

“Loan modifications for October and November, which were the first two full months of the converservatorship, increased by 50 percent from the previous two months,” said James Lockhart, FHFA director.

“These data reflect the increased commitment of the servicers and the GSEs to help borrowers in trouble modify their loans to keep them in their homes.”

Which begs the question, what were they doing prior to the takeover? Answer: mainly simple repayment plans.

Loan modifications increased from a monthly average of 2,883 in 2007 to roughly 5,000 a month in linked quarters, then climbed to 5,600 in October and 8,291 in November.

Actual loan mods accounted for 24 percent of all loan workouts in November, up from 16 percent a month earlier and 13.7 percent in September, but nowhere near the 66 percent share in 2007 (that could be attributed to the sharp rise in repayment plans).

Both foreclosure starts and foreclosure sales spiked in October before falling precipitously in November, and will likely fall even further thanks to recent measures to halt such activity.

The loss mitigation ratio, which is total loss mitigation activities (loan mods, payment plans, short sales, charge-offs, etc) divided by the total of loss mitigation activities plus foreclosures completed and third-party sales increased to 61.7 percent in November.

That’s the highest level since June, when it stood at 64.8 percent, and significantly higher than the year-to-date ratio of 55.2 percent.

However, loan delinquencies show no sign of letting up, with both 60+ day and 90+ day lates nearly doubling since March 31.

Fannie Mae to Loosen Guidelines on Rate and Term Refis

Fannie Mae has also announced plans to ease underwriting and appraisal guidelines on rate and term refinances of Fannie Mae owned loans in an effort to allow more troubled borrowers to take advantage of the low mortgage rates currently on offer.

The so-called “DU Refi Plus” loan program will begin on April 4.  Hopefully interest rates will still be low…

Source: thetruthaboutmortgage.com

Apache is functioning normally

If you’re currently in the market to purchase a home, you’re probably pretty frustrated. After all, it has become increasingly difficult to find a property thanks to ongoing inventory constraints.

Factor in investors you have to compete with and renting starts to sound a lot more realistic.

Over the past few years, investors have been leading the recovery, namely the big gun hedge funds buying up thousands and thousands of distressed properties.

But they’ve been going with the buy and rent strategy, as opposed to the classic buy and flip approach.

Still, classic flippers have been able to get back in the game thanks to the rebounding real estate market, though after a steady increase in business, numbers are on the decline again, according to RealtyTrac’s Q1 2014 U.S. Home Flipping Report released yesterday.

During the first quarter, single-family home flips, which RealtyTrac defines as two sales that occur within six months, accounted for 3.7% of all home sales.  That number is down from 4.1% in the fourth quarter and 6.5% a year earlier.

However, flippers have gotten better at what they do because the average sales price of a flipped home during the first three months of the year was $55,574 higher than the average original purchase price, up from $51,805 a year ago.

And the unadjusted return on investment was 30% of the average original purchase price, up from an unadjusted ROI of 28% a year earlier.

House flippers appear to be benefiting by purchasing more expensive homes, which increases their margins, according to some real estate brokers referenced in the report.

However, that means flips are turning over more slowly, with flips completed in the first quarter taking an average of 101 days to complete, up from 92 days in the fourth quarter and 79 days in the first quarter of 2013.

New York Is the Flippiest Metro in the Nation

Wondering where the most flips are taking place? Well, New York led the large metros with a 10.2% share, followed by Jacksonville (10%), San Diego (7.1%), Las Vegas (6.7%) and Miami (5.9%).

New York was also the volume leader with 1,791 flips completed in the first quarter, followed by Phoenix (894), Los Angeles (828), Miami (749), and Riverside-San Bernardino (627).

Metros that saw the biggest year-over-year increases in flips included San Antonio (up 52%), Nashville (up 50%), Indianapolis (up 47%), Austin (up 35%), and Providence (up 33%).

Conversely, flips as a share of home sales were down big from a year earlier in New Orleans (-83%), Baltimore (-81%), Minneapolis (-80%), Richmond, VA (-80%), and Detroit (-76%).

They also took a dive in New York (-37%), Phoenix (-39%), Riverside-San Bernardino (-22%), Atlanta (-57%), and Chicago (-29%).

Are Flips Worth Buying or Simply a Ripoff?

Unsurprisingly, an overwhelming 82% of flipped properties went to owner-occupants, seeing that investors don’t typically flip homes to sell to other investors.

But 18% did go to a buyer with a different mailing address than the subject property, and 43% were all-cash sales.

Flipped homes are clearly very appealing to home buyers, namely because they’re designed to be exactly that.

Flippers know precisely what to upgrade/update/fix/renovate to make the home extremely attractive in today’s market.  They also know how to list homes properly.  If you browse through listings, you’ll probably be drawn to the flipped homes for that reason.

But if you scroll down to the transaction history of the home, you may be a little perturbed to see the list price 50-100% higher than the last sales price that occurred just months before.

Sadly, this market is so constrained that people don’t even care and will bid full price regardless of the huge markup.

At the end of the day, plenty of buyers want a move-in ready home, so paying a premium to get something all ready to go makes sense.

The downside to flips, other than the ridiculous price tags, is the quality of the work. When you walk into some flips, it’s immediately obvious that the flipper used the cheapest materials they could find to get the job done.

Often going as far as to mix and match materials to make things work, even if they don’t actually go together. So flips aren’t necessarily in better shape, they could just be hiding a lot of the bad with superficial upgrades.

As always, do lots of homework, ask a ton of questions, and inspect homes thoroughly before making an offer.

Source: thetruthaboutmortgage.com