TheMReport — News and strategies for the evolving mortgage marketplace.
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46 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest Home Flipping drops to Five- year low At the same time, study finds investors' average profit per flip hits record high. S ales of flipped single- family homes declined nationwide both quarter- over-quarter and year- over-year in Q 3 2014, hitting their lowest level since the second quarter of 2009, according to RealtyTrac. The number of flipped homes, or those homes which are purchased and then resold within 12 months, represented 4 percent of all single-family home sales in the United States in the third quarter of last year. That's down from 4.6 percent in Q2 2014 and 5.6 percent in the third quarter of 2013, according to RealtyTrac. The average gross return on investment for homes flipped in the third quarter of last year was 36 percent, a slight increase from 35 percent in the previous quarter but down from 37 percent in the third quarter of 2013, according to RealtyTrac. The average gross profit per home flipped for investors was $75,990 in Q 3 2014, RealtyTrac reported. "Flipping returned to its historic norm of 4 percent in the third quarter as home price appreciation cooled in many of the hot flipping markets across the country," said Daren Blomquist, VP of RealtyTrac. "Meanwhile, the record-high average profits per flip in the quarter demonstrate that flippers are still filling an important niche in an aging housing market with historically low levels of new homes being built. The most successful flippers are buying older, outdated homes in established neighborhoods and rehabbing them extensively to appeal to modern tastes." The top five metropolitan areas with the most home flips in Q 3 were Miami (1,190), Los Angeles (1,170), Phoenix (1,147), New York (1,070), and Tampa, Florida (789), with Tampa being the only one of those five that saw a year- over-year increase in home flips, according to RealtyTrac. The metros that saw the highest year-over-year increases in home flips included Louisville, Kentucky (117 percent); Kansas City (66 percent); Boston (40 percent); New Orleans (38 percent); and Indianapolis (35 percent). Metro areas with the highest return on investment for home flips in Q 3 were Baltimore (88 percent); Pittsburgh (79 percent); Detroit (61 percent); Richmond, Virginia (60 percent); and Mobile, Alabama (59 percent), according to RealtyTrac. San Francisco, San Jose, California, Los Angeles, New York, Seattle, and San Diego posted the highest average gross profit among metros per home flip, all with more than $125,000 per home flip. "The markets with an increase in flipping tend to be those with older, distressed inventory still available that flippers can often buy at a discount and add value to," Blomquist said. "Those discounted distressed properties have become harder to find, but a recent jump in scheduled foreclosure auctions could provide more fodder for flippers in the next three to six months." Nationally, the average amount of time it took to complete a home flip in the third quarter was 185 days, a slight decrease from 187 days in Q2 but up sharply from 133 days in the third quarter of 2013, RealtyTrac reported. refinance Share rises on lower interest rates ellie Mae's monthly study finds refi activity accounted for 40% of october's mortgage volume. P lunging mortgage rates lifted the share of refinance loans by 4 percentage points in October, resulting in a seven- month high, according to a monthly survey from mortgage technology provider Ellie Mae. In its latest Origination Insight Report, examining mortgage activity during the month of October, the company found refinancing accounted for 40 percent of overall mortgage volume, hitting its highest level since March. Ellie Mae's report draws its data from a sampling of more than half of all mortgage applications initiated on the company's Encompass platform. Refinance share rose during last year's fall season as average mortgage interest rates declined. According to Ellie Mae, the average 30-year fixed rate for all loan types fell for a sixth consecutive month in October to 4.37 percent, which is the lowest average the company recorded since July 2013. "Low rates are creating opportunities for homeowners to either lower their payments or capitalize on their homes' equity," said Jonathan Corr, president and COO of Ellie Mae. Despite the increase in demand, lenders were able to improve their closing time on refinance loans, bringing the average closing time to 39 days in October, compared to 40 days in September. Closing time also fell on mortgages for home purchases, declining by one day to an average of 40 days. Reviewing loan applications initiated 90 days prior, Ellie Mae calculated an overall loan closing rate of 59.4 percent in October, an improvement of more than a percentage point from September but down from August's survey high of 61.1 percent. Both purchase and refinance closings were up, rising to 66.1 percent and 49.3 percent, respectively. The closing rate for home purchases represents a record high for that category. The credit profile for loans closed in October was little changed from September, with the average FICO score staying flat at 726 and the average loan-to-value ratio slipping 1 percentage point to 81 percent. On the other hand, the average FICO score for a denied loan application in the same month dropped 13 points to 681, while the average loan-to-value ratio fell one point to 80 percent, Ellie Mae reported. According to the company's data, about one-third of the loans closed in October had an average FICO score under 700, compared to just 28 percent in October 2013. "Low rates are creating opportunities for homeowners to either lower their payments or capitalize on their homes' equity." — Jonathan Corr, Ellie Mae