Home Flipping Surges to 14 year High

By Taff Weinstein at

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Home Flipping Surges to 14 year High

Investors rushed to snatch up properties to resell for a profit. Home flipping comprised 7.5% of all home sales during the first quarter, up from 7.3% a year prior, ATTOM Data Solutions reports in its 2020 Home Flipping Report. It defines a house flip as a purchase and sale within 12 months.

The gross profit on a typical property flipped nationwide (the difference between the median sales price and the median paid by investors) rose in the first quarter to $62,300. However, due to rising home prices, that profit for investors equated to about 36.7% return on investment compared to the original purchase price, which is down from 40.9% a year earlier.

“Home flipping has gradually taken up a larger portion of the housing market over the last couple of years,” says Todd Teta, chief product officer at ATTOM Data Solutions. “But profits are down and are lower than they’ve been since the dark days following the Great Recession, which is a sign that investors aren’t keeping up with price increases in the broader market. Enter now the coronavirus pandemic and the prospects for home flipping are notably uncertain, at least in the short term. We should know a lot more in a few months about whether home prices drop and investors get hard hit, or whether they can increase their profit margins.”

59.5% of homes flipped were purchased with all-cash. Investors also took an average of 174 days to complete a flip, slightly down from 180 days a year prior.


What Happened to Rates Last Week?

Mortgage backed securities (FNMA 2.500 MBS) gained +55 basis points (BPS) from last Friday's close which caused fixed mortgage rates to edge slightly lower compared to the levels of the prior week

Domestic Flavor:

The Talking Fed: We had our FOMC Interest Rate Decision and Policy Statement on Wednesday along with their economic projections, followed by a live press conference with Fed Chair Powell at 2:30.
Here are some key highlights:
 
  • They kept their key interest rate at 0.25%
  • They announced that they would keep direct Treasury purchases at a pace of $80B per month and MBS at a pace of $40 per month but from June to July, that pace will be $96B of MBS due to reinvestment of principals received. You can read their official asset purchase program details here.
  • The median "guestimate" of the FOMC members are -6.5% GDP for 2020 and then +5.0% GDP in 2021 and +3.5% in 2022
  • Fed's Fund Rate to remain at 0.25% through 2022
  • Unemployment Rate for 2020 9.5%, 2021 6.5% and 2022 5.5%
  • Core Inflation to remain well below their target rate of 2%. 2020 1.0%, 2021 1.5% and 2022 1.7%
Inflation Nation: The May Consumer Price Index (CPI) showed no threat of inflation. The YOY Headline reading was just 0.1% and the Core (ex food and energy) increased by just 1.2%. Both readings were a tenth below market expectations. The May Producer Price Index (PPI) showed no threat of inflation. The YOY Headline reading was -0.8% which was a nice improvement over April's -1.2% level but its still in the red. Core (ex food and energy) increased by just 0.3%. vs est of 0.4%

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims hit 1.542M vs est of 1.500M, so right as expected. Continuing Claims moved to 20.929M vs est of 20.000M, so a little higher than expected. The May JOLTS (Job Openings and Labor Turnover Survey) showed that there were 5.046M unfilled jobs vs est of 5.00M
 

What to Watch Out For This Week:

 

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.

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.

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