Auction.com: Are investors growing wary of flipping?

“Buy and hold” strategy becoming more prevalent

http://www.housingwire.com/articles/33911

Real estate investors interested in making money on a home are becoming less likely to flip the home and more likely to hold the property and rent it out, according to a new report from Auction.com.

Auction.com’s 2015 Real Estate Investor Activity Report for April found that the gap between investors who are flipping a home and investors who are holding a property to rent is shrinking.

In Auction.com’s Real Estate Investor Activity Report for the first quarter, 53.5% of investors were looking to flip their purchase, while 44.8% were planning on renting the home out.

But in April, the share of investors looking to flip a home fell to 50.4%, while the share of investors planning to rent grew to 48.3%.

Auction.com Executive Vice President Rick Sharga said that the shift in the national numbers may be due in large part to Texas.

“Most of the country and most investor segments performed in a manner very consistent with what we’ve seen over the past year, but investment strategies in Texas appear to have shifted pretty dramatically,” Sharga said. “Investors probably realize that without oil fueling Texas’ growth, it’s unlikely that home prices will continue to appreciate rapidly, and it’s very likely that home purchase demand will weaken. Given those considerations, a buy-and-hold strategy may suddenly be much more attractive.”

However, investor intent varies considerably by the type of auction (live event versus online auction) and by investor profile.

Investors bidding at live events appear to be more likely to flip the properties they purchase based on survey responses collected in April, Auction.com’s report showed.

According to the report, respondents indicated a “strong preference” toward flipping over holding to rent in nearly every state where Auction.com conducted live events, with the exception of Texas, where lower oil prices have resulted in fewer energy related jobs in four of the past five months.

“It will be interesting to see if this trend spreads to other states where energy-related jobs have generated economic gains, or whether we’ll begin to see a boom in home purchases stimulated by these lower energy prices across the country,” Sharga said.

On the other hand, investors at online auctions in April continued to say that they are more likely to hold the properties they purchase – except in the West, where the pendulum has swung toward flipping. This shift, while slight, is likely due to the region’s higher purchase prices negatively impacting rental property returns, Auction.com said.

Existing home sales to finish 2015 at record level

Housing starts struggle to keep up

http://www.housingwire.com/articles/33912

Existing home sales are expected to finish the year at their highest level since 2006, the National Association of Realtors’ economic forecast forum revealed at its 2015 Legislative Meetings & Trade Expo.

However, accelerating price growth and rising mortgage rates have the potential to change this.

Both Lawrence Yun, chief economist of NAR, and Robert Dietz, vice president of tax and market analysis at theNational Association of Home Builders, shared their perspective on what’s going on in the housing market.

In the most recent existing-homes sales report, sales surged to their highest annual rate in 18 months, showing a promising beginning to the spring homebuying season.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 6.1% to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February — the highest annual rate since September 2013 (also 5.19 million).

“Sustained job growth and interest rates below 4% have been the catalyst behind the improvement in sales,” said Yun. “The demand for buying is especially strong in parts of the country where jobs gains and economic activity have outpaced the rest of the nation — particularly in states like Utah and Florida and cities such as Denver.”

“Housing supply needs to increase measurably to meet the pent-up demand for buying,” said Yun. “To put it in perspective, there were 37 million more people in the U.S. last year compared to 2000, yet existing-home sales that year were higher (5.2 million) than last year (4.9 million).”

Meanwhile, Dietz added that unlike the existing-home market, demand for single-family new home construction remains weak, and the homebuilding industry is acting accordingly by focusing on multifamily rental housing.

“According to our data, new home construction for first-time buyers is about half of the long-term average and the reason is simple: the decline in homeownership and marriage rates among young adults,” Dietz said.

And things are not projected to return to normal levels for the building market until at least 2017, Dietz added.

Yun is forecasting housing starts to come in around 1.1 million this year and reach 1.4 million in 2016, which is still below the 1.5 million needed each year to keep up with the underlying demand. New-home sales are likely to total 570,000 this year, and increase to 720,000 next year.

Monday Morning Cup of Coffee: Setting the stage for higher interest rates

Delinquencies drop, call to delay TRID grows, and housing metrics

http://www.housingwire.com/articles/33921

Monday Morning Cup of Coffee takes a look at news across HousingWire’s weekend desk, with more coverage to come on bigger issues.

The pressure will be on for the Federal Reserve to boost inflation expectations to set the stage for higher rates despite the general weakness of the overall economy.

How will that and other factors affect rate volatility? Glad you asked. Because Chris Flanagan at Bank of America/Merrill Lynch has the answer in note to clients.

“Most of what we have said in recent months remains our view for the near term (1-2 months). The 1.90-2.20% 10-year range should persist for the near term, enabling rate volatility to decline; although the yield curve should flatten modestly, it should remain steep enough to provide a favorable backdrop for securitized products” Flanagan writes. “Spreads should manage to grind tighter, with 3-5 basis points expected tightening of the current coupon spread providing some indication of how much more tightening is left (not much).

“Meanwhile, the reflationary effects of ECB QE should continue to take hold, while pressure remains on the Fed to acknowledge the weak US data,” he writes. “Ultimately, we think the combined central bank efforts are likely to be moderately successful in boosting inflation expectations, which will set the stage for higher rates and rate volatility. The past couple of weeks of market performance tell us that process may be more dramatic than we might.”

A new chart shows the 30-day delinquency rate for mortgage loans on one-to-four unit residential properties decreased to a seasonally adjusted rate of 2.56% of all loans outstanding at the end of the first quarter of 2015.

Lynn Fisher and Joel Kan at the Mortgage Bankers Association put together the chart below which shows the 30-day delinquency rates from the last two quarters are the lowest in more than four decades. They cite the state of the job market and growing home equity cushions. The bottom line? Inflows into “serious delinquency” are much reduced and the rate of new foreclosure starts has also fallen dramatically.

Click to enlarge

(Source: MBA)

“Loans that are more than 90 days delinquent or in foreclosure (together, serious delinquencies) are still elevated relative to historic norms, as judicial states with long foreclosure timelines are still working through backlogs,” Fisher and Kan write. “Increased mediation and resolution efforts by servicers also contribute extra time until resolution of the distressed loans.

“Over 80% of the serious delinquencies portrayed above were originated in 2008 and earlier, and more recent loan vintages are seeing significantly better performance given higher overall credit quality and improving market conditions,” they find.

HousingWire will be keeping an eye on the goings-on at the MBA’s National Secondary Market Conference 2015 in New York City.

The conference features legendary NBC newsman Tom Brokaw as the keynote speaker. Brokaw will take the stage Monday morning with David Stevens, the president and chief executive officer of the MBA.

Last year, Stevens set off a firestorm with his remarks on minority borrowers. Soon after opening the conference last year, a Twitter war developed between Stevens and Josh Rosner, a well-known analyst at Graham, Fisher & Co. HousingWire publisher Paul Jackson recapped the Twitter war here.

Stevens is set to address the crowd at MBA Secondary at 8:30 a.m. Eastern Monday.

On Sunday, Stevens may have provided a small preview of his remarks when he posted the following on Twitter:

HausingWire reporter Ben Lane is on the scene in New York and will have reports on Stevens’ speech and the other happenings in and around MBA Secondary.The Housing Finance Policy Center at the Urban Institute has published two new blogs definitely worth a look.

The first blog, titled “Give lenders more time to implement new borrower disclosure rules,” summarizes the recent Congressional testimony of Center Director Laurie Goodman who urged policymakers to allow a grace period for the implementation of the new mortgage disclosure rules and, more importantly, to finalize GSE reform.

The second blog, titled “Ginnie Mae should correct the glitch in first-time homebuyer data,” reports on an error HFPC researchers found in Ginnie Mae data, which they say could mislead policymakers about how far the first-time homebuyers share has fallen

The housing market index, also known as the inexplicably popular “homebuilder confidence index” has long been signaling strength in the new home market that has never appeared.

Homebuilders have been very confident in the 6-month sales outlook despite unusually weak buyer traffic.

Monday’s release of the May reading will likewise likely show a gain in confidence. Builder confidence in the market in April rose four points to a level of 56 on the index

The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes.

Housing starts & permits have been some of the most disappointing data on the calendar, underscoring how weak the new home market really is. Excuses were abundant during the heavy weather of the first quarter but those excuses won’t apply to the latest report for April which comes out on Tuesday.

Privately owned housing units authorized by building permits in March dropped 5.7% on a monthly basis, coming in at a seasonally adjusted annual rate of 1,039,000. This is 2.9% above the March 2014 estimate of 1,010,000.

Privately owned housing starts in March dropped 2.5% on a yearly basis but rose 2% from February, coming in at a seasonally adjusted annual rate of 926,000.

The real bright spot in the housing sector, which, in total, is still struggling despite the onset of spring, has been existing home sales.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 6.1% to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February—the highest annual rate since September 2013.

But the comparison with the 6.1% sales jump March is difficult, meaning that Thursday’s release of existing home sales has a big hurdle to jump to come in high.

Existing home sales tally the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends.

No banks were closed the week ending May 15, according to the FDIC.

Dr. HousingBubble: Return of the broke homeowner

9.3M saw foreclosure, DIL or short sell 2006-2014 – ready to go now

Homebuyers burned in the housing crash are itching to buy again and the pressure is on from the industry to get them in there. It’s been seven years – so what housing crash, Dr. HousingBubble asks sarcastically.

He walks you through it.

(The National Association of Realtors) analysis found that between 2006 and 2014 some 9.3 million homeowners were foreclosed on, received a deed-in-lieu of foreclosure or short sold.  Bottom line, there were a boatload of people losing their homes when it was once thought to be the safest investment.  We are a forward looking species and the NAR realizes that many of these foreclosure veterans are ready to get back on the home buying bandwagon once again.  The problem of course is that most are buying inflated properties with massive mortgage leverage.  Debt with low interest rates is the elixir of choice.  So how big is this potential pipeline?

What is interesting about this housing recovery is that the NAR is actually lagging because of paltry sales volume.  The NAR would like to see high levels of sales versus this low volume churn at higher prices.  So I can understand when they run the numbers on the 9.3 million people that have scarred credit scores that somehow, they see an unlimited pool of potential “return buyers” as if this was as simple as someone getting divorced and re-married.

This is an interesting proposition.  I actually agree and feel many previous home buyers are itching to buy again.  The question is, do they have the income to back up current home prices without toxic mortgages?  So far, the answer is no.  You have investors, wealthy foreigners, and high income households making up the bulk of purchases.  Your typical family in high priced areas is being pushed out of the market.  The numbers appear to show something like 1.6 million potential future buyers.  That might seem like a big number but this is spread out over many years.

For a Fannie and Freddie backed mortgage, the waiting period is 7 years.  For a FHA insured loan it is 3 years.  For VA loans which make up a small portion of the pool, it is 2 years.  The big pool is with Fannie Freddie, and FHA insured loans.  7 years ago was go time for the mortgage crisis.  With all the home buying cheerleading and stock market joy ride, people have completely forgotten about the previous correction.  The clock has now reset.

Read the whole thing here.

Investors still bullish on single-family rental market

Highlights from IMN Single-Family Rental Investment Forum

While attending and participating on one of the many panels at the Information Management Network’s 3rdAnnual Single Family Rental Investment Forum held April 20 – 22 in Miami, it became clear that there is still enthusiasm by investors of many types and sizes toward the single-family rental market.

Several hundred attendees descended on the Loews Miami Beach Hotel to network, exchange ideas, seek new business opportunities, and listen to numerous industry experts discuss topics such as macroeconomics, market conditions and trends, mergers and acquisitions, growth potential in this space, investor financing, flipping vs. holding, securitization, the critical importance of effective, accurate due diligence, and much more.

Although there was an abundance of enthusiasm expressed by many of the smaller and mid-sized investors and various vendors who attended this year’s forum, it did seem to this observer that the recent downward pressure on yields experienced by the much larger institutional investors has been somewhat tempered. This is to be expected following the phenomenally rapid interest and growth found within this asset class over the past three years.

Since the housing crash of 2006, several Wall Street-backed firms, such as Blackstone Group, institutionalized the so-called “mom and pop” business of buying and then renting single-family homes. Additionally, real estate investment trusts, hedge funds and private-equity firms have spent well over $20 billion purchasing as many as 150,000 houses since 2012.

But, as home prices have gone up in many markets, especially those markets where the institutional investors focused their efforts, invariably investment returns have come down. This has created an environment where the larger investment firms are pulling back, while the smaller investors who aren’t concerned about shareholders’ returns are increasing their participation.

I was honored to serve on a panel that focused on acquisition due diligence, which is critical in this space, as accurate, timely up-front valuation, property and market conditions of individual and pools of properties can make or break profitability in this asset class.

Also serving on this panel were moderator Randy Hagedorn, director of acquisitions forBroadtree Home Rentals, Meghan Jones-Rolla, senior vice president-assistant general counsel for Servicelink, Larry Leon, president of L2 Real Estate Services, Carlos Gonzales, owner of Real Estate Life Network, and Shane Sauer, chief operating officer and co-founder of RentFax.

With shrinking yields becoming an issue of concern to institutional and other larger investors, technology companies attending the IMN forum were among the most visited firms with company booths in the expo hall, as one might expect. The more accurate and robust data investors accumulates for use in due diligence efforts, the more successful they will be in analyzing which properties will yield the highest net return on their investments. With respect to larger pools of properties, bidding is so competitive today that “getting it right” relative to property valuations is critical to being not only the successful bidder, but a profitable one.

However, in addition to possessing state-of-the-art technology, the panelists were unanimous in agreement that having local “boots on the ground” adds significantly to the overall due diligence process. For example, having relationships with local real estate professionals who are experts on market conditions, pricing, rents, and issues that can impact profitability, whether properties are purchased to rent or flip, pay dividends in deciding which properties to purchase and which to avoid.

With interest still quite high regarding the single-family rental market, which continues to make up more than 10% of all rental properties in America, just as it has for several decades following World War II, we can expect IMN to continue to offer educational opportunities for investors and the plethora of vendors serving this market that will increase their chances for success.

Black Knight: Home prices tick up slightly in February

Modest monthly gain the best since June 2014

U.S. home prices were up 0.7% for the month in February, and rose 4.6% from last year, according to the latest home price index report from Black Knight Financial Services.

This was the largest monthly gain in national home prices since June 2014.

At $242,000, the national level HPI is now just 9.5% off its June 2006 peak of $268,000.

The report also found that home prices in three of the nation’s 20 largest states – Colorado, New York and Texas – hit new highs in February.

Of the nation’s 40 largest metros, nine hit new peaks – Austin, TX; Columbus, OH; Dallas, TX; Denver, CO; Honolulu, HI; Houston, TX; Nashville, TN; San Antonio, TX; and San Jose, CA.

Colorado leads the 20 largest states tracked by the Black Knight HPI at 9.4% Y/Y growth.

Of the 20 largest states, Connecticut, Massachusetts, New Jersey and Pennsylvania all saw prices decline in February; only Connecticut saw a yearly decline.

Las Vegas continues to lead the 40 largest metro areas in distance from its pre-crisis peak; home prices there remain almost 41% off their May 2006 highs.

CoreLogic: More than 1 million homeowners regained equity in 2014

5.4M properties still underwater as of 4Q14

Some 1.2 million borrowers regained equity in 2014, bringing the total number of mortgaged residential properties with equity at the end of Q4 2014 to approximately 44.5 million or 89% of all mortgaged properties, according to CoreLogic (CLGX).

Nationwide, borrower equity increased year over year by $656 billion in 4Q14. The CoreLogic analysis also indicates approximately 172,000 U.S. homes slipped into negative equity in the fourth quarter of 2014 from the third quarter 2014, increasing the total number of mortgaged residential properties with negative equity to 5.4 million, or 10.8% of all mortgaged properties.

This compares to 5.2 million homes, or 10.4%, that were reported with negative equity in Q3 2014, a quarter-over-quarter increase of 3.3%. Compared to 6.6 million homes, or 13.4%, reported for Q4 2013, the number of underwater homes has decreased year over year by 1.2 million or 18.9%.

“The share of homeowners that had negative equity increased slightly in the fourth quarter of 2014, reflecting the typical weakness in home values during the final quarter of the year,” said Frank Nothaft, chief economist for CoreLogic. “Our CoreLogic HPI dipped 0.7% from September to December, and the% of owners ‘underwater’ increased to 10.8%. However, from December-to-December, the CoreLogic index was up 4.8%, and the negative equity share fell by 2.6 percentage points.”

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

For the homes in negative equity status, the national aggregate value of negative equity was $349 billion at the end of Q4 2014. Negative equity value increased approximately $7 billion from $341.8 billion in Q3 2014 to $348.8 billion in Q4 2014.

On a year-over-year basis, however, the value of negative equity declined overall from $403 billion in Q4 2013, representing a decrease of 13.4% in 12 months.

Of the 49.9 million residential properties with a mortgage, approximately 10 million, or 20%, have less than 20% equity (referred to as “under-equitied”) and 1.4 million of those have less than 5-percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5%, an additional 1 million homeowners now in negative equity would regain equity.

“Negative equity continued to be a serious issue for the housing market and the U.S. economy at the end of 2014 with 5.4 million homeowners still ‘underwater’,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect the situation to improve over the course of  2015. We project that the CoreLogic Home Price Index will rise 5% in 2015, which will lift about 1 million homeowners out of negative equity.”

Here are some highlights:

  • Nevada had the highest percentage of mortgaged properties in negative equity at 24.2%; followed by Florida (23.2%); Arizona (18.7%); Illinois (16.2%) and Rhode Island (15.8%). These top five states combined account for 31.7% of negative equity in the United States.
  • Texas had the highest percentage of mortgaged residential properties in an equity position at 97.4%, followed by Alaska (97.2%), Montana (97.0%), Hawaii (96.3%) and North Dakota (96.2%).
  • Of the 25 largest Core Based Statistical Areas (CBSAs) based on mortgage count, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 24.8%, followed by Phoenix-Mesa-Scottsdale, Ariz. (18.8%), Chicago-Naperville-Arlington Heights, Ill. (18.5%), Riverside-San Bernardino-Ontario, Calif. (14.8%) and Atlanta-Sandy Springs-Roswell, Ga. (14.6%).
  • Of the same largest 25 CBSAs, Houston-The Woodlands-Sugar Land, Texas had the highest percentage of mortgaged properties in an equity position at 97.7%, followed by Dallas-Plano-Irving, TX (97.1%), Anaheim-Santa Ana-Irvine, Calif. (96.4%), Portland-Vancouver-Hillsboro, Ore. (96.4%) and Denver-Aurora-Lakewood, Col. (96.2%).
  • Of the total $349 billion in negative equity, first liens without home equity loans accounted for $185 billion aggregate negative equity, while first liens with home equity loans accounted for $164 billion, or 47%.
  • Approximately 3.2 million underwater borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $228,000. The average underwater amount is $57,000.
  • Approximately 2.1 million underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $295,000.The average underwater amount is $77,000.
  • The bulk of home equity for mortgaged properties is concentrated at the high end of the housing market. For example, 94% of homes valued at greater than $200,000 have equity compared with 84% of homes valued at less than $200,000.