This Week in Real Estate: March 12, 2018

Favorable news released This Week in Real Estate by the FDIC and NAHB with respect to the easing of credit and a growing AD&C loan base resulting in the expansion of residential construction activity. Below are a few highlights from the first week of March that influence our business:

* U.S. Home Flipping Increases to 11-Year High in 2017 With More Than 200,000 Homes Flipped. ATTOM Data Solutions released its Q4 and 2017 U.S. Home Flipping Report on Thursday, which shows that 207,088 U.S. single family homes and condos were flipped in 2017, up 1 percent from 204,167 home flips in 2016 to the highest level since 2006 – an 11-year high. The 207,088 homes flipped in 2017 represented 5.9 percent of all single family home and condo sales during the year, up from 5.7 percent of all sales in 2016 to the highest level since 2013. “The surge in home flipping in the last three years is built on a more fundamentally sound foundation than the flipping frenzy that we witnessed a little more than a decade ago,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Flippers are behaving more rationally, as evidenced by average gross flipping returns of 50 percent over the last three years compared to average gross flipping returns of just 31 percent between 2004 and 2006 — the last time we saw more than 200,000 home flips in consecutive years. And while financing for flippers has become more readily available in recent years, 65 percent of flippers still used cash to buy homes flipped in 2017, nearly the reverse of 2004 to 2006, when 63 percent of flippers were leveraging financing to buy.” The total dollar volume of financed home flip purchases was $16.1 billion for homes flipped in 2017, up 27 percent from $12.7 billion in 2016 to the highest level since 2007 — a 10-year high. Completed home flips in 2017 yielded an average gross profit of $68,143 (difference between median purchase price and median flipped sale price), up 5 percent from an average gross flipping profit of $64,900 in 2016 to a new all-time high for as far back as data is available (2000). Homes flipped in 2017 took an average of 182 days to complete the flip, tied with 2016 for the highest average days to flip since 2006 — an 11-year high.
* AD&C Loan Growth Points Toward More Building. The volume of residential construction loans increased by 1.6% during the fourth quarter of 2017, marking 19 consecutive quarters of growth. Furthermore, stabilization for the year-over-year growth rate is an indicator of continued, modest growth for single-family construction. Tight availability of acquisition, development and construction (AD&C) loans has been a limiting factor for home building growth, but easing credit conditions and a growing loan base have helped expand residential construction activity in a thin inventory environment. According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions rose by $1.2 billion during the fourth quarter of 2017, raising the total stock of outstanding loans to $74.4 billion. On a year-over-year basis, the stock of residential construction loans is up 7%. Past quarters of slow growth have reduced the year-over-year growth rate, but it has has stabilized during the third and fourth quarters near the recent expansion rate for single-family construction starts. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 83%, an increase of $33.6 billion. However, lending remains much reduced from years past. The current stock of existing residential AD&C loans now stands 64% lower than the peak level of residential construction lending of $203.8 billion reached during the first quarter of 2008.
* Job Growth Surges with Strongest Growth Since Last Summer. Job growth continued its surge in February, this time growing at its strongest rate since July last year, according to the latest release from the U.S. Bureau of Labor Statistics. Total non-farm payroll employment increased by 313,000 in February, according to the report. This is drastically higher than ADP and Moody’s Analytics’ predicted increase of 235,000 jobs and up from the general estimated increase of 205,000 jobs. It is also an increase from January’s growth, which came in at 200,000 jobs. This marks the 89th consecutive month of job growth, and the largest monthly gain since July 2016, according to Chief Economist Danielle Hale. “There will be more Fed hikes in 2018, but impact on mortgage rates are uncertain,” Lending Tree Chief Economist Tendayi Kapfidze said. “Labor market growth continues to support the Feds rate hike cycle. However, the Fed hiked three times in 2017 and mortgage rates fell by 33 basis points.” “The February jobs report was as good as it gets, with the establishment survey showing the largest monthly job gain since July 2016, solid upward revisions for the prior two months, a rebound in the average workweek, and most of all, no runaway wage acceleration,” Fannie Mae Chief Economist Doug Duncan said.

Have a productive week.


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