There are few more interesting real estate investments than home flipping — seeing an older or run-down piece of property find a fairy godmother to make it beautiful again and then being sold in several months’ time. According to a report in Realtor.com, home flipping activity is increasing across the country, as more investors look to capitalize on the run-up in home prices.

 

There’s limited opportunity to flip houses now: Sidney Torres from CNBC.

 

On par with the highest home-flipping rate since the first quarter of 2012, nearly 50,000 single-family homes and condos were flipped in the first quarter of this year, comprising 6.9 percent of all home sales, according to ATTOM Data Solutions’ Q1 2018 U.S. Home Flipping Report.

 

Even profits were up. with flips in the first quarter of this year selling at an average gross profit of $69,500, up from $66,287 a year ago, the highest average gross profit for flips since ATTOM began tracking such data in 2000. A flip is defined as a property that has been sold more than once in a 12-month period.

 

The data company’s senior VP Daren Blomquist is cited in the report saying, “The 2018 housing market is a double-edged sword for home flippers. Rapidly rising home prices boosted by low inventory of homes for sale or for rent are padding profits at the back end when flippers sell. But those same market realities are eroding flipping returns at the front end by forcing flippers to pay more to acquire homes to flip.”

 

Memphis, TN won the prize for the highest flip rate of the 136 metros with 15.1 percent, followed by Albany, Ore. (11.7 percent); East Stroudsburg, Pa. (11.4 percent); York, Pa. (10.4 percent); and Merced, Calif. (10.3 percent).

 

 

Source: NAR, TBWS

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Thursday is the best day to list a home, find out what time from CNBC.

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If the adage about rising tides lifting all boats is true, then it comes as no surprise that rising incomes have been helping to offset recent increases in mortgage rates, offering a boost to housing affordability in the first quarter of this year, the National Association of Home Builders/Wells Fargo Housing Opportunity Index shows.

 

With an increase of 59.6 percent of homes sold that were affordable to median income earners, the index showed that 61.6 percent of new and existing homes sold between the beginning of January and the end of March were affordable to families earning the U.S. median income of $71,900. That median income mark reflects an increase of 5.7 percent in 2018. According to a news article in Realtor Magazine, the NAHB chief economist Robert Dietz reports that this wage growth has helped to boost housing affordability. He goes on to say that a growing economy, along with tight inventories and increasing household formations, will lift housing production in the year ahead. This prediction is dependent, of course, on the fate of mortgage rates as the year progresses.

 

According to the article, of the 237 metro areas analyzed in the first quarter, the index showed 167 markets experiencing an increase in affordability compared to the fourth quarter of 2017.

 

While we aren’t expecting you to scramble to an area based solely on affordability, if you’re looking for the nation’s most affordable major housing market, look no further than Youngstown-Warren-Boardman, OH-PA metro area, where 90.9 percent of all new and existing homes sold in the first quarter were affordable to families earning the area’s median income of $60,100. Other affordable major housing markets (in order) were Indianapolis-Carmel-Anderson, Ind.; Scranton-Wilkes Barre-Hazleton, PA.; Toledo, OH; and Harrisburg-Carlisle, PA.

 

If you prefer small-town living, the most affordable small market is Cumberland, Md.-W.Va., where 98.5 percent of the homes sold in the first quarter are affordable to families earning the median income of $55,500.

 

The most unaffordable place to live if you fall in the median income slot? It’s still San Francisco, CA, which remains the most costly major housing market, and where only 9.2 percent of homes sold in the first quarter of 2018 were affordable to families earning the area’s median income of $119,600. California continues to dominate the least affordable markets, with Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Diego-Carlsbad falling closely behind them.

 

 

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Never underestimate the power of words. Sellers evidently care about who they sell their homes to. According to an article in the Wall Street Journal, using data provided by Seattle-based brokerage Redfin, one of the most effective ways to win a bidding war is to write the seller a letter.

 

Other factors can up your game as well. Unsurprisingly, all-cash offers can double your chances of winning the bid. And waiving a financing contingency (agreeing to forfeit your deposit if you can’t get a mortgage) can boost a buyer’s odds by 57.9%, according to the data. Escalation clauses (including verbiage that should another offer be higher, you would automatically pay a designated figure over that amount — kind of like eBay). But escalation clauses can also be a turn-off in some markets, so they must be used wisely.

 

Using articulate writing skills came in a close third in the study, however, increasing a buyer’s odds by 52.2%. Numbers vary according to market demographics — the higher the price, the higher the percentages.

 

Redfin’s data are based on about 14,000 offers in 2016 and 2017 that involved competing bids. It’s logical to assume that rational sellers would choose the highest bid. But risk aversion can often trump high offers. To avoid the pain of a deal going dead, sellers often choose the sure thing, such as a quick close or all cash (especially both)—even if it means accepting less money.

 

But back to the letter idea. Evidently, in addition to flattering a seller’s ego—or assuring him or her the home will be cared for—a letter can also signal serious intent on the part of the buyer — something that makes the seller believe that no matter what the hurdles, the buyers will make it work. The confidence gained by putting a face and a story to the transaction is like verifying that your doctor wears a clean white lab coat and has a great bedside manner.

 

Some buyers tell tales of their dilemmas in these letters, such as their years-long quest for a home that is situated in the kind of neighborhood they always wanted for their children or living near family. Others praise the homeowners for keeping the vintage touches of their home intact, pledging to preserve the home’s charm if their bid is accepted.

 

Sometimes knowing the provenance of a home or a neighborhood can push an owner over the edge. The article tells of how the buyer found out that the seller was not only an active local volunteer but also had custom-built the home years earlier. In a letter, the buyer described his desire to part of the community as well as maintain the house, rather than tear it down. In the end, he beat out a higher offer.

 

So next time you speak ill of your high school English teacher who pounded into you the importance of a 5-paragraph essay, know that those skills, including the art of story-telling, can tug at a homeowner’s heartstrings when the going gets tough.

 

Source: TBWS

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f you’re already a homeowner, do you wonder why you keep getting unsolicited snail mail asking if you have any interest in selling your home? Wonder no more. The gains in home prices are getting bigger as the supply of homes for sale gets leaner, and buyers and their agents are hoping-hoping-hoping you’ll consider selling now instead of later.

 

According to real estate broker Redfin, the median price of a home sold in March surged 8.9 percent compared with March 2017 —the biggest annual increase in four years. Redfin tracks prices in 174 local markets and calculated the median home price at $297,000.

 

Like sports cars built in limited supply, low-low home inventories are pushing prices higher. Housing supply was down 11.9 percent in March compared with a year ago. As a result, sales fell 3.7 percent. The number of new listings in March dropped 5.6 percent annually.

 

Redfin credits this to sellers being slow to list and new construction failing even to come close to closing the gap. If this does not change, inventory will be a persistent drag on sales for the remainder of the year.

 

Single-family home construction fell 3.7 percent in March, and building permits, an indicator of future construction, declined 5.5 percent, barely 2 percent higher compared with a year ago. Multifamily construction is one of the few bright spots in all this having increased considerably. Builders are banking on continued, strong demand for rental apartments as homebuyers struggle to find affordable homes.

 

Despite higher prices, buyer demand is still strong. Sellers, however, are slow to sell because of concerns about finding anything else they like or can afford as well as losing their low fixed mortgage interest rates. With multiple offers being the rule and not the exception to it throughout most larger urban areas, the average home went under contract in 43 days in March, more than a week faster compared with a year ago and a March record. Nearly a quarter of the homes sold for more than their list prices.

 

Large metropolitan markets in California, Seattle, and Denver continue to see big price gains, but some unexpected markets are seeing inflation as well. Markets like Allentown, PA (21.8 percent), Detroit, MI (20.6 percent) and Las Vegas, NV (16.5 percent) are not far behind.

 

The supply situation is most acute in Washington, D.C., where inventory fell 22 percent in March annually, according to expert sourced. It would take just 1.8 months at the current sales pace to exhaust the supply. A balanced market supply is considered to be about six months.

 

With the Feds expected to raise mortgage rates several more times in 2018, current homeowners will have even less incentive to sell. Sales have been dropping as a result of the tight supply, and prices usually lag sales by a few months. That does not appear to be the case, however, in this cycle, as demand is outweighing everything else.

 

 

Source: CNBC. TBWS

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Home sales are still going strong and the National Association of Realtors says they could have been even higher if there were more homes for sale. Seems there is a critical shortage of listings, especially in higher price ranges. And out in the trenches, homebuilders are struggling to keep up with demand amid higher land prices and labor shortages.

Homes sales in the West, where prices are highest, are seeing the biggest gains. Nationally, sales of homes priced above $750,000 were up nearly 19 percent from a year ago. New tax laws limit the mortgage interest deduction. Borrowers can now deduct interest paid on up to $750,000 in mortgage debt. Previously, the limit was $1 million in mortgage debt.

Sales for homes priced under $100,000, were down 16.5 percent compared with a year ago. This where the supply shortage is worst.

The paradox in a market like this is that Realtors are hearing very few concerns from buyers about rising mortgage rates or the new tax laws —even fewer concerns than in December, when the tax laws were in final debate. Buyers who are afraid of rates heading higher, are spurred to step up and lock in with a purchase and a funding rate, according to Peter Boockvar, chief investment officer at Bleakley Advisory Group.

But that is not the case for potential sellers. Lawrence Yun, chief economist at the NAR, speaks of the “interest rate lock effect,” where sellers are increasingly telling agents that they do not want to move because they will lose their record-low fixed mortgage rate.

”Mortgage rates are at their highest level in nearly four years, at a time when home prices are still climbing at double the pace of wage growth,” added Yun. “Homes for sale are going under contract a week faster than a year ago, which is quite remarkable given weakening affordability conditions and extremely tight supply. To fully satisfy demand, most markets right now need a substantial increase in new listings.”

Shortage on the lower end is likely why first-time homebuyers have been pulling back as affordability and supply are weighing more heavily on them now.

“To get to those levels, demand needs to stay hot, builders need to continue ramping up new home activity and more sellers need to feel comfortable selling. Threading that needle has so far proven difficult,” says Aaron Terrazas, senior economist at Zillow.

According to the latest issue of Barron’s, the new home sales boom is far from over, citing how shares of several homebuilders look attractive as the U.S. housing market could strengthen further.

With a continuing strong demand, a dearth of inventory and modest annual price gains, industry observers see this going for several years unless mortgage rates spike, according to the article.

The SPDR S&P Homebuilders (ETF) has fallen 9 percent this year. Homebuilder shares recently traded for 10 times 2018 profit estimates, compared to the overall market’s P/E ratio of 17, even though the companies are expected to have double-digit earnings growth this year and next, the article said.

As we have mentioned frequently here, the future behavior patterns of millennials are crucial in determining whether housing starts will close the gap from being 35% under the normalized trend. The resolution of the millennial question is important but hard to estimate: builders are a critical element and indicator for the economy.

 

 

Source: Thomson/Reuters, Barron’s, NAR,TBWS

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2018 COST VS VALUE REPORT

 

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House flipping is not for the faint of heart, and with today’s lack of housing inventory, competition is fiercer than ever. Compared to last year, the biggest difference in 2018 is that the increase in buyers might push home values even higher. In this market, finding a buyer usually isn’t the problem. Finding an affordable property to flip is.

 

With house flipping careful planning and patience reign supreme. If low inventory means you’re doing fewer flips this year, you’d better make sure your flips are second to none.

 

Experts point out what to keep in mind when flipping a home so that you are not caught flat-footed. First, set a maximum for the price home in which you would consider investing for the short term. Don’t leave out closing costs, a budget for staging, and carrying costs — things like insurance and taxes. In fact, it’s even more prudent to expect the worst while hoping for the best when flipping.

 

Next, set a budget for renovations. Best not to compare yourself to reality (fantasy) TV flippers, who can buy the worst home in the best neighborhood and gut it entirely. They have more resources and capital in their hands than most house-flippers, since they are tasked with entertaining you as they renovate. Have you ever watched the credits at the end of each show? You’ll see vendors doing things for free just to see their names scrolling past. Even in the real world, however, this is where relationships come in. Establishing a great buddy-contractor, one dedicated to helping you do high quality flips within a reasonable period of time (without taking on a bunch of side jobs at the same time) will go a long way to permitting you to sleep at night while your flip is in process.

 

Location, of course, is key. Choose a house in an up-and-coming neighborhood that may be on the brink of gentrification. Study these neighborhoods by driving around as well as pestering the planners at City Hall to check out what businesses, schools, facilities and infrastructure may be planned for the area.

 

The most important piece of homework you’ll do, however, is to study recent comparably-priced homes and sales in the neighborhood — homes that have closed escrow within the past 3-6 months, asking prices on homes currently for sale, DOM (days on market) and study keenly the ones that never sold to analyze why they failed to find love. A great exercise is to go to every open house you can on weekends in the area you are considering to check out demand as well as the buyer demographic.

 

Savvy house flippers are super sleuths. They look for houses not yet on the market, going straight to an owner, a bank auction or a housing wholesaler for a better deal. But often you can partner up with a good Realtor who specializes in the area in which you are considering investing. He or she knows the market like the backs of their hands, and may offer you expertise in exchange for being the listing agent after you pound that final nail.

 

When readying a flip for sale, those in the know advise you to concentrate on kitchens, bathrooms, systems, paint and flooring. Don’t get too fancy. New appliances and fixtures, as well as a bit of discount granite can go a long way to making a gem out of an ugly duckling. Buyers prefer hard surface flooring to carpeting, but there are so many inexpensive (gorgeous) options to tile and real hardwood. You’ll find buyers focusing how the house makes them feel as well as how their lives fit into it instead of whether the floors are real wood.

 

Lastly, set your expectations realistically. House flipping in general is not a get-rich-quick scheme, even if one good sale might pay off all your credit cards. Football games are won ten yards at a time before players do their happy dance in the end zone. The most cost-effective way to flip is to look at tidy profits rather than a fantasy. Steady house flippers stay the course, establishing a reputation for being prudent investors, all of which impresses local residents as well as real estate agents and makes it easier and easier to find financing.

 

Source: TBWS

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U.S. home prices increased 6.3 percent compared with December 2016, according to the much-watched S&P CoreLogic Case-Shiller national home prices index.

 

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New home sales up 17.5% in November from CNBC.

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