Mortgage Rates Head Back Down

Mortgage rates settled back down after inching higher in recent weeks.

"The 10-year Treasury yield declined after last week's post-Brexit high in anticipation of the Fed's September policy meeting,” says Sean Becketti, Freddie Mac’s chief economist. “The 30-year fixed-rate mortgage followed Treasury yields, falling 2 basis points and settling at 3.48 percent. Despite the decrease in rates, the Refinance Index plunged 8 percent to its lowest level since June.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 22:

• 30-year fixed-rate mortgages: averaged 3.48 percent, with an average 0.6 point, falling from last week’s 3.50 percent average. Last year at this time, 30-year rates averaged 3.86 percent.
• 15-year fixed-rate mortgages: averaged 2.76 percent, with an average 0.5 point, falling from last week’s 2.77 percent average. A year ago, 15-year rates averaged 3.08 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 2.80 percent, with an average 0.5 point, dropping from last week’s 2.82 percent. A year ago, the 5-year ARM averaged 2.91 percent.

Source: Freddie Mac

Home Flipping is Hot Again

Home flipping zoomed to a six-year high in the second quarter of 2016, as more investors eyed properties to spruce up and turn over for a quick resale.

Read more: Beware of the Flip

A total of 51,434 single-family homes and condo sales were completed flips in the second quarter of this year, up 14 percent from the previous quarter and up 3 percent from a year ago. It is the highest number of home flips since the second quarter of 2010, according to the Q2 2016 U.S. Home Flipping Report, released by ATTOM Data Solutions.

“Home flipping is becoming more accessible for smaller operators thanks to an increasingly competitive lending environment with more loan options for real estate investors, who are also benefiting from the historically low mortgage interest rates,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. “That favorable lending environment for flippers has helped to fuel the recent flipping frenzy we’ve seen over the past five quarters.”

Homes flipped in the second quarter accounted for 5.5 percent of all single-family and condo sales. A total of 39,775 investors (both individuals or institutions) completed at least one home flip during the quarter, the highest number of home flippers since the second quarter of 2007, the report showed.

“We’re starting to see home flipping hit some milestones not seen since prior to the financial crisis, which is somewhat concerning, but there are a couple of important differences in the home flipping of 2016 compared to 2006 when home flipping peaked during the last housing boom,” Blomquist says. “First, home flippers are realizing a much bigger gross ROI in 2016, averaging 49 percent in the first two quarters compared to an average gross ROI of just 27 percent in 2006. Second, while an increasing number of flippers are financing their purchases, more than two-thirds are still using cash to purchase compared to about one-third using cash to purchase back in 2006.”

Homes that were flipped in the second quarter took an average of 185 days to flip, up from 182 days a year ago. The metro areas that had the longest average times to flip properties were Ogden-Clearfield, Utah (229 days); Naples, Fla. (222 days); Punta Gorda, Fla. (212 days); Palm Bay-Melbourne-Titusville, Fla. (206 days); and Pensacola, Fla. (206 days), according to the report.

Overall, the following 10 markets had the highest flipping rates in the nation:

1. Memphis: 11.1%
2. Visalia-Porterville, Calif.: 10.1%
3. Tampa, Fla.: 10%
4. York-Hanover, Pa.: 9.7%
5. Mobile, Ala.: 9.6%
6. Fresno, Calif.: 9.5%
7. Lakeland-Winter Haven, Fla.: 9.5%
8. Deltona-Daytona Beach-Ormond Beach, Fla.: 9.4%
9. Clarksville, Tenn.: 9.3%
10. Miami: 8.6%

Source: RealtyTrac

Are Online Shoppers Hurting REITs?

As retail activity shifts increasingly to the online world, experts identify some real estate investment trusts that stand to benefit. But others may have a bumpy road ahead.

The surge in internet retail sales is proving to be a boon for industrial real estate investment trusts, as online retailers need space to store and distribute their goods. But the same can’t be said for Class B and C mall REITs; the ever-increasing portion of consumers doing their shopping online is putting a dent in the revenue of mall tenants, which is in turn harming the investment vehicles that rely on them.

Online retail sales grew 15 percent last year to $341.7 billion, according to the U.S. Commerce Department. That dollar amount represented 7 percent of total retail sales in 2015. “And we only expect that to rise in the future, especially as millennials who grew up with e-commerce take over the big portion of spending,” says Edward Mui, a REIT analyst at Morningstar, a research firm in Chicago.

The bifurcated effect on industrial and retail space is evident in REIT performance. Industrial REITs in the FTSE NAREIT US REIT index have returned a whopping 21.8 percent so far this year, compared to 9.9 percent for REITs overall. Meanwhile, mall REITs are lagging behind with a 6.9 percent return.

Prologis, the largest industrial REIT, has calculated that every dollar of online sales requires three times more distribution and warehouse space than a dollar of sales at a brick-and-mortar store. That’s because when goods are shipped to a brick-and-mortar retailer, the shipment usually entails a large amount of goods delivered to a limited number of stores. But internet sales routinely involve the delivery of a single package to anywhere in the country and beyond. Oftentimes these goods travel long distances before reaching their end point and must be stored in industrial facilities along the way. Mui says that’s part of the reason why the online shopping trend “seems to be an unalloyed benefit” for industrial REITs.

Steve Brown, a real estate fund manager at American Century Investments, agrees. He says that, as a result of the high demand for this type of industrial space, rents and occupancy rates are rising: “We think that trend will continue along with the growth in online sales.”

Online retail goliath Amazon is naturally a huge user of industrial space. But so are Wal-Mart and Target, which are both building out their online presence, according to Jonathan Miniman, a portfolio manager at CBRE Clarion Securities in Radnor, Penn. He says online sales will be a “fundamental tailwind for the foreseeable future” in the industrial REIT space and adds that these companies demand high-quality spaces: “Online retailers need the newest and best assets—bigger floor plates and higher ceilings.”

Amazon in particular demands unique design and capacity for its distribution centers and warehouses, which means rethinking the relationship between industrial tenants and real estate professionals. “That requires innovations from landlords, making landlords their partners,” Mui says. “That trend will continue.” Amazon is also trying to cut down on its delivery time, and it will take the right kind of real estate to do that. So Amazon’s relationship with its landlords will only grow closer, Mui says, and for REITs that feature buildings with truly effective landlords, the growth of online sales could be a boon, he says.

But online sales aren’t a benefit to all. On the retail front, falling sales at retailers such as Sears and J.C. Penney are causing pain for some malls. “While [Class] A malls are still putting up good numbers, B and C malls have flat to falling occupancies and rents,” Brown says. “The A malls have restaurants and popular tenants like Tesla and Apple.”

That’s not to say that the retail REIT sector as a whole is underperforming. It has returned 10.7 percent this year—better than the overall REIT average—propelled by strength in certain types of shopping centers. Some retail trends that reach beyond commercial class type and indicate diversification can lead to better outcomes for shopping centers. Miniman notes that shoppers at brick-and-mortar stores are spending more on durable goods, such as home-improvement items, than on nondurable goods, such as apparel. They’re also looking for more experiential options, such as restaurants and movies. “Retailers are trying to figure it out, and the better ones will,” he says.

Omnichannel retailing, which mixes brick-and-mortar with online, is the most profitable, Miniman says. When a customer orders a product online and picks it up at a store, the company doesn’t have to pay a sales commission. Additionally, when online shoppers come to pick up their orders at the store, they’re confronted with yet another chance to buy.

Also, this trend of mixing online sales with physical locations means retailers can use their stores as warehouse and distribution centers. For example, big department stores may not be able to complete deliveries within hours of ordering, but they can be more convenient for shoppers picking up last-minute items on the way home. “If you’re Macy’s, you can’t compete with Amazon,” Miniman says. “But you have 500 stores, and you’re close to the last mile for consumers.”

Unlike some mall REITs, shopping center REITs have thrived this year, returning 16.8 percent. They are benefiting from the strong sales numbers put up by tenants such as Home Depot, Lowes, Wal-Mart, and Target, as these retailers are faring better than department stores. “Strip centers are seeing a rise in occupancy because of the improvement in the economy,” Brown says.

But at the most basic level, the strip centers are facing the same issues as malls. While gross domestic product has grown about 2.1 percent annually since the recession ended in 2009, that hasn’t been strong enough to boost Class B and Class C retail in malls or shopping centers, which have both suffered as income has stagnated for the nonwealthy. But for both types of REITs, Class A properties will continue to shine, analysts say. “That’s where the retailers want to be,” Miniman says.

BY DAN WEIL for Realtormag http://realtormag.realtor.org/commercial/feature/article/2016/07/are-online-shoppers-hurting-reits

Why You Should Own a Home in an A+ School District

Whether you have children or not, it pays to buy in an area with great schools. Realtor.com® recently released a new study that identifies the price premium to buy a home in a strong public school district, as well as the top 10 districts garnering the highest home prices and demand from buyers.

School districts rising to the top are: Beverly Hills Unified in Los Angeles; Highland Park Independent School District in Dallas; Kenilworth School District No. 38 in Kenilworth, Ill.; Rocky River City School District in Cuyahoga, Ohio; Clear Creek Independent School District in Harris, Texas; and School Town Of Munster School District in Lake, Ind.

Realtor.com® compared homes located in school districts rated 9 or 10 on the GreatSchools.org 10 point scale to homes situated in districts rated six or less. The analysis shows homes within the boundaries of the higher rated public school districts are, one average, 49 percent more expensive – at $400,000 – than the national median of $269,000 and 77 percent more expensive than schools located within the boundaries of the lower ranked districts with a median of $225,000.

“It’s common knowledge that buyers are often willing to pay a premium for a home in a strong school district,” says Javier Vivas, research analyst for realtor.com®. “Our analysis quantifies just how good it is to be a seller in these areas. On average, homes in top-rated districts attract a price premium of almost 50 percent and sell more than a week faster than those located in neighboring lower ranked school districts.”

Houses located in these areas, on average, also move eight days faster than homes in below average school districts and sell four days faster – at 58 days – than the national average of 62 days. Additionally, properties within the boundaries of higher-rated school districts are viewed 26 percent more, on average, than the average home on realtor.com® (an indicator of buyer demand) and 42 percent more than homes in areas with below average schools. 

A look at the top school districts

Highest Price Premiums
In top-ranked Beverly Hills Unified School District, homes sell for 689 percent more, at $3.8 million, than other homes in Los Angeles County, at $550,000. That’s 1.6 times the premium of homes located in the Santa Monica-Malibu Unified School District – rated 9 – that covers Santa Monica, Calif. and Malibu, Calif. and has a median list price of $2.5 million. Beverly Hills’s price premium is 3.9 times more than Culver City Unified School District in Culver City, Calif. that has a rating of 8 and a median list price of $975,000.

The district with the second highest home price premium is Highland Park Independent School District in Dallas where homes are 632 percent more expensive at $1.8 million than the median home in Dallas County at $277,000. Homes in Highland Park are 3.7 times and 4.4 times more expensive, respectively, than neighboring districts of Coppell Independent School District in Coppell, Texas – rated 9 – with a median of $470,000 and Dallas Independent School District in Dallas – rated  5 – with a median of $400,000, respectively.

Kenilworth School District No. 38 in Kenilworth, Ill., where homes carry a median sales price of $1.6 million, ranked third in the nation with its home price premium of 606 percent compared to Cook County. That’s 2.1 times more than the neighboring district of Wilmette Public Schools District 39 in Wilmette, Ill., rated 10 by GreatSchools, with a median list price of $780,000, and 1.2 times more than Winnetka School District 36  in Winnetka, Ill., rated 10, with a median list price of $1.4 million. Winnetka School District 36 is also ranked fifth in the nation for its home price premium.

Rounding out the Top 10 school districts with the highest price premiums are: Indian Hill Exempted Village School District – Hamilton, Ohio; Winnetka School District 36 – Winnetka, Ill.; Manhattan Beach Unified School District – Los Angeles; Scarsdale Union Free School District – Westchester, N.Y.; Saddle River School District – Bergen, N.J.; San Marino Unified School District – Los Angeles; and Mariemont City School District – Hamilton, Ohio. See chart below for additional detail.

Highest Demand from Home Buyers
The district with the highest home buyer demand – as measured by realtor.com® listing views compared to the surrounding county – is Rocky River City School District in Cuyahoga, Ohio, rated 10, where listings within district boundaries receive 2.8 times more views than other areas in Cuyahoga County. Homes in the Rocky River District also receive 1.7 and 1.5 times more listing views, respectively, than Westlake City School District in Westlake, Ohio ranked 9 by GreatSchools and Lakewood City School District in Lakewood, Ohio with a GreatSchools rating of 6.

Vivas adds, “While highly ranked school districts in these markets have pushed home prices higher than their surrounding areas, the majority of these high demand markets are relatively affordable when compared to the national median, which is a big factor contributing to their popularity.”

The second most popular school district in the nation for home buyers is Clear Creek Independent School District in Harris, Texas. It garners 2.2 times the listing views of Harris County and 1.2 and 1.0 times as many views, respectively, as nearby districts of Pasadena in Pasadena, Texas (rated 5) and La Porte Independent School District in La Porte, Texas.

Coming in as the third most viewed school district for home buyers,  School Town of Munster School District in Lake, Ind., has a GreatSchools rating of 9 and receives nearly 2.2 more listings views than other homes in the county. That’s 1.36 more views than neighboring district of School Town Of Highland Independent School District, rated 6, in Highland, Ind.

Completing the Top 10 list are Orange School District – New Haven, Conn.; Etiwanda Elementary School District – San Bernardino, Calif.; Longmeadow School District – Hampden, Mass.; Strongsville City School District – Cuyahoga, Ohio; Plymouth-Canton Community School – District Wayne, Mich.; and Regional School District 05 School – District New Haven, Conn.

For more information, visit www.realtor.com.

Where Low Down Payment Loans Are Easiest

In some metros, home buyers are putting less down on a home purchase than in other areas, a new report from the Urban Institute shows.

Read more: Survey: Save for 3 Years for a Down Payment

The study, which uses data from CoreLogic, covers the period between May 1 and May 31 of this year and identifies the mean origination FICO score for each metro area. The area’s loan-to-value (LTV) ratio was also factored in to determine how low the down payments actually were (e.g. higher the LTV, the lower the down payment).

Overall, the metros struggling the most economically had the lowest FICO scores and lowest down payments, the study found.

“What you’re seeing is a reflection of the lower economy,” says Sheryl Pardo, spokesperson for the institute. “(The Federal Housing Administration) is an important player in those local communities … it’s helping people get on the ladder to home ownership.”

The Urban Institute identified the following seven metro areas as having the lowest down payment averages:

Detroit-Dearborn-Livonia, Mich.

• Average FICO score: 728
• Average loan-to-value: 90%

Miami-Miami Beach-Kendall, Fla.

• Average FICO score: 732
• Average loan-to-value: 84%

Cleveland-Elyria, Ohio

• Average FICO score: 733
• Average loan-to-value: 88%

Las Vegas-Henderson-Paradise, Nev.

• Average FICO score: 735
• Average loan-to-value: 88%

San Antonio-New Braunfels, Texas

• Average FICO score: 736
• Average loan-to-value: 90%

Houston-The Woodlands-Sugar Land, Texas

• Average FICO score: 736
• Average loan-to-value: 86%

Cincinnati, Ohio-Ky.-Ind.

• Average FICO score: 736
• Average loan-to-value: 89%

Source: “10 Cities Where Low Down-Payment Mortgages Are King,” Credit.com (Sept. 10, 2016)

Lenders Go After the ‘Zombie’ Homes

Banks want to get rid of “zombie” foreclosures and prevent them from haunting housing markets. At the end of the third quarter, 18,304 residential properties in the foreclosure process were vacant (dubbed “zombie foreclosures), a 9 percent drop from a year ago.

Read more: Metros Plagued With Surging Vacancies

That represents about 4.7 percent of all residential properties in foreclosures in the third quarter, according to ATTOM Data Solutions’ Q3 2016 U.S. Residential Property Vacancy and Zombie Foreclosure Report.

“A strong seller’s market along with political pressure has likely motivated lenders to complete the foreclosure process over the past year on many vacant properties that were lingering in foreclosure limbo for years,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. “While that has reduced the number of vacant properties in the foreclosure process — so-called zombie foreclosures — it has also resulted in a corresponding rise in the number of vacant bank-owned homes. Assuming that the foreclosing lenders are maintaining these properties and paying the property taxes, they pose less of a threat to neighborhood quality than zombie foreclosures, but they still represent latent inventory in an inventory-starved housing market.”

Overall, nearly 1.4 million residential properties were vacant by the end of the third quarter.

The following markets had the highest number of vacant REOs:

• Florida: 5,880
• Michigan: 4,661
• Ohio: 3,585
• Illinois: 2,652
• Georgia: 2,626

At a metro level, the areas with the most vacant REOs were: Detroit, Chicago, Miami, Philadelphia, and New York, according to the report.

Meanwhile, the states with the highest number of vacant foreclosures – or zombies – were in New Jersey (3,698), New York (3,556), Florida (2,528), Illinois (1,018) and Ohio (999). At a metro level, zombie foreclosures were highest in New York (3,590), Philadelphia (1,525), Chicago (783), Miami (694), and Tampa (603).

Source: RealtyTrac

August 2016 National Housing Trends eNewsletter

Angela Yglesias

Levesque Realty 

Cell: 805-490-4944   
Phone: 805-490-4944 

Housing Trends August 2016 View archives

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Existing-Home Sales Lose Steam in July

WASHINGTON (August 24, 2016) — Slowed by frustratingly low inventory levels in many parts of the country, existing-home sales lost momentum in July and decreased year-over-year for the first time since November 2015, according to the National Association of Realtors®. Only the West region saw a monthly increase in closings in July.



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The Best Time to Invest Is Now?

Columnist Jeff Reeves with MarketWatch says right now is the best time ever to invest in real estate. He discounts fears by some about another housing crisis brewing – the uptick in "liar loans” or "Alt-A mortgages” and return of house flipping. He says any such bubble fears amount to "a lot of hogwash.



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National housing indicators

Existing home sales (July)

5.39 millions units*

Existing home median price (July)

$244,100

Housing Starts (July)

1.211 millions units*

New home sales (June)

0.654 millions units*

*Seasonally adjusted annual rate. Source: NATIONAL ASSOCIATION OF REALTORS®.

National economic indicators

Home ownership

1st Qtr 2016

+63.5%

1st Qtr 2015

+63.7%

The homeownership rate of 63.5 percent was 0.2 percentage points (+/-0.4)* lower than the first quarter 2015 rate (63.7 percent) and 0.3 percentage points (+/-0.4)* lower than the fourth quarter 2015 rate (63.8 percent).

New home sales

May 2016

+6.0%

April 2016

+16.6%

Sales of new single-family houses in May 2016 were at a seasonally adjusted annual rate of 551,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.0 percent (±12.8%)* below the revised April rate of 586,000, but is 8.7 percent (±14.6%)* above the May 2015 estimate of 507,000.

Source: U.S. CENSUS BUREAU

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Source: NATIONAL ASSOCIATION OF REALTORS®.

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