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TH E M R EP O RT | 11 TAKE 5 MDWELL Ups and Downs of Home Flips Cities where home flipping is either booming or breaking down. I n a recent report, Realtor.com revealed that the business of flipping homes is becoming riskier. The risk of rapidly falling prices is likely to affect flippers as they would end up losing value on their homes, even as they work to improve them, the report indicated. It also stated that figuring out areas where U.S. home flipping is up—or down—the most is not only significant to would-be flippers but is also a critical aspect of predicting the direction of key markets. The report found that larger coastal cities recorded the biggest drop in flips as prices are slowing down and the costs far outpaced what buyers could afford. A spike in flips was reflected in smaller places and more affordable cities with an influx of new residents, the report stated. Las Vegas and Phoenix—areas where this sort of speculative real estate investment contributed most to the last bubble—are booming again. The report is based on information derived from home sales in the 200 largest metropolitan areas for July, August, and September 2018, comparing them with the same period a year prior. A home flip, per the report, is any type of home bought and resold within a three- to 12-month period. Source: Realtor.com's "Flip … or Flop? The Best—and Worst—Cities for House Flippers Right Now" Metros Where Flipping Is Up the Most Ranking Metro Median Home Price Increase in Home Flips Difference Between Purchase and Sales Prices 1. Raleigh, NC $340k 63.4% 32% 2. Charlotte, NC $323k 42.5% 36% 3. Orlando, FL $300k 37.1% 41% 4. Phoenix, AZ $330k 35.7% 36% 5. Las Vegas, NV $320k 33.7% 38% Metros Where Flipping Is Down the Most Ranking Metro Median Home Price Decrease in Home Flips Difference Between Purchase and Sales Prices 1. Columbus, OH $340k -18.8% 36% 2. Cape Coral, FL $299k -14.4% 40% 3. Virginia Beach, VA $279k -10.6% 60% 4. Riverside, CA $387k -10.6% 37% 5. Portland, OR $453k -10.4% 37% One risk for lenders is the temptation to pour resources into production/origination, at the expense of compliance/quality assurance. They have to maintain a proper sense of balance here and make sure they are funding quality products. Additionally, if interest rates rise, borrowers are more likely to take risks and will be tempted to commit fraud. Clear and stringent systems have to be in place now to anticipate these scenarios. One particular area of concern for lenders is the non-Qual- ified Mortgage (non-QM). While that market is growing and default rates are extremely low, there will always be a greater risk in originating non-QM, with the lack of legal/regulatory protection QM loans provide. Lenders have to do their due diligence here and make sure they have adequately trained staff before jumping into the non-QM market. M // What are some of the key technologies that are likely to impact the mortgage market this year? THORPE // Technologies that drive efficiencies in sales and production will make the most impact. Automated marketing systems and platforms are becoming more and more important to the success of originators. Customer experience is also a big area where technology is changing the landscape. Borrowers will soon have near 100 percent transparency throughout the loan process, and utilization of these systems will also help keep originations efficient and reduce turn times. We're also going to see more and more companies adopt app-based lead generation systems (think Rocket Mortgage) that will help drive business opportunities for originators. "One risk for lenders is the temptation to pour resources into production/origination, at the expense of compliance/quality assurance. They have to maintain a proper sense of balance here and make sure they are funding quality products."