Housing-News-Report-May-2017

Named the Nation’s Best Newsletter by NAREE

May 2017 Vol 11 Issue 5

MY TAKE By Mike Fratantoni Mortgage Bankers Association P10  STATE SPOTLIGHT: NORTH CAROLINA P16 

DATA IN ACTION Property Taxes by State and County P24 

Contents

FEATURED ARTICLE

Interest in foreclosures is heating up in 2017 even as the foreclosure market dries up, pushing investors and other housing bargain hunters to dig deeper for new sources of real estate deals. Housing News Report interviewed experts from Boston to Southern California and many locales in-between to find what new sources those experts are tapping to find the best deals in the distressed-deficient 2017 housing market. P1 FINDING REAL ESTATE DEALS WHEN DISTRESS DRIES UP

P10 MY TAKE: MIKE FRATANTONI, MBA

Mike Fratantoni, chief economist with the Mortgage Bankers Association, outlines the trade organization’s proposal for GSE reform and the rationale behind the proposal, which was drafted by the MBA’s Task Force for a Future Secondary Mortgage Market. The proposal seeks to balance the sometimes-competing priorities of taxpayer protection and investor returns, while holding down consumer costs and preserving consumer access to credit.

P1

P15 BIG DATA SANDBOX: SINK OR SWIM

As U.S. home prices steadily rise, millions of U.S. homeowners who were once underwater on their mortgages are no longer underwater even while millions of U.S. homeowners each year are now swimming in a pool of newfound home equity riches. This trend of rising home equity wealth, however, is highly uneven across the country and even within local markets from zip code to zip code, as this infographic illustrates.

P10

P16

Flipping — as an investment strategy — may indeed be out in North Carolina for the most part due to the lack of properties and increased competition around the state. That is not to say that flipping properties is a total no go in North Carolina, but many experts Housing News Report interviewed across the state recommended a two- pronged strategy involving buy-and-hold for cash flow in the short term with the option to sell and reap the rewards of rising home prices in the longer term. P16 SPOTLIGHT: FLIPPING OUT IN THE TAR HEEL STATE

P24

P24 DATA IN ACTION: PROPERTY TAXES BY STATE AND COUNTY

Property taxes levied on U.S. single family homes in 2016 totaled $277.7 billion, an average of $3,296 per home and an effective tax rate of 1.15 percent, according to an analysis of property tax assessor data for more than 84 million single family homes by ATTOM Data Solutions. See where your state and county ranked for the year and what other markets offer a lighter property tax burden.

HOUSINGNEWS REPORT

FEATURED ARTICLE

BY DAREN BLOMQUIST, EXECUTIVE EDITOR Editor’s Note: this is the second of a two-part series investigating the distressed market for 2017. Read the first article in the February 2017 Housing News Report . Finding Real Estate Deals When Distress Dries Up

Interest in foreclosures is heating up in 2017 even as the foreclosure market dries up.

Q1 2017 Foreclosure Activity Vs. Pre-Recession Levels

Pct Change From Pre-Recession Avg

-440.8%

2204.2%

Click on map to view interactive nationwide heat map

“The REOs that come on, they are not that far off from the traditional stuff. Back in 2007 you were getting 20 percent off the actual value. … Now you have them selling for 5 percent off, if that,” said Leland DiMeco, owner and principal broker at Boston Green Realty.

ATTOM Data Solutions • P1

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FEATURED ARTICLE

Off-Market Marketplace DiMeco said investors and other buyers are also becoming more interested in “off-market” properties that aren’t listed for sale on the local Multiple Listing Service but may be available to purchase at the right price. “What’s been hot is some of the off- market stuff. Guys who are going under the table,” he said explaining that he has owners of tenant-occupied investment

Meanwhile DiMeco said he has noticed an uptick in interest in foreclosures from buyers on RealtyTrac.com, where he is listed as a local foreclosure specialist in Boston. “Last year we just had low inventory. It became very competitive. Whatever it was listed for, it sold 1 or 2 percent over that,” he said. “Investors might have gotten fed up with that and were looking at the REO market, which is why they were reaching out to me.” Although Boston-area foreclosure activity increased 19 percent in 2016 compared to 2015, the 12,043 properties with foreclosure filings in the metro area were still about one-third of the peak of 35,955 in 2008, according to the ATTOM Data Solutions 2016 U.S. Foreclosure Market Report.

properties who approach him to shop around interested in those properties with other investors without having to list the properties and disrupt the tenants by doing so. “They don’t want to have it come up there (on the MLS) and possibly disrupt the tenant. And they want serious buyers. … There is quite a bit of the pie that does get moved around, legitimately, but just off-market.”

What’s been hot is some of the off- market stuff. … There is quite a bit of the pie that does get moved around, legitimately, but just off-market.”

Leland DiMeco Owner and principal broker, Boston Green Realty

U.S. Foreclosure Starts & Completions Foreclosure Starts

Foreclosure Completions (REO)

$250,000

$200,000

$150,000

$100,000

$50,000

0

ATTOM Data Solutions • P2

HOUSINGNEWS REPORT

FEATURED ARTICLE

Construction Loan Volume in Select Markets 2015 2016 Pct Change

73%

$10,000,000,000

80%

$9,000,000,000

70%

$8,000,000,000

60%

51%

$7,000,000,000

50%

$6,000,000,000

26%

$5,000,000,000

40%

$4,000,000,000

30%

$3,000,000,000

9%

20%

$2,000,000,000

10%

$1,000,000,000

$0

0%

Washington, D.C.

Cleveland

Seattle

Los Angeles

73 percent from 2015. Dollar volume of construction loans secured by existing single family homes increased 20 percent while dollar volume of construction loans secured by residential vacant land increased 29 percent. Small-lot subdivision is a hot trend in several urban markets across the country, according to Chris Richter, co-founder of Audantic, a real estate analytics company that provides market research and leads for real estate investors. “You’ll see much more development in the city … they don’t do that in Tulsa,” he said, pinpointing Los Angeles, Washington D.C. and Seattle, where he lives, as three of the top markets for infill development. “Stuff here they’ll pay $500,000 for one little lot. … It baffles me when I drive around.”

In my opinion small lot subdivisions are the No. 1 for-sale trend.”

Jonathon Dilworth Founding principal, c&d partners, Los Angeles

Infill Development Deals Across the country in Los Angeles, where the distressed market has also dried up and there is not much space to build large new developments, investors are turning to small-lot subdivisions to add value and create inventory. “In my opinion small-lot subdivisions are the No. 1 for- sale trend,” said Jonathon Dilworth, founding principal of c&d partners, which is converting two single- story single family homes into four two-story single family homes at the corner of North Mansfield Avenue and

Fountain Avenue in Los Angeles. Dilworth said a 2005 ordinance by the city of Los Angeles opened up the possibility of building single family homes with zero lot lines. “Without that you’d be classified as townhome or condo, which is not valued as high.” A total of 3,020 construction loans were originated in the Los Angeles metro area in 2016, up 5 percent from the previous year to the highest level since 2007 — a nine-year high — according to ATTOM Data Solutions. Those 3,020 loans represented nearly $9.0 billion, up

ATTOM Data Solutions • P3

HOUSINGNEWS REPORT

FEATURED ARTICLE

Foreclosure Auctions More Competitive Pct of Foreclosure Auctions Sold to Third Party Investors

Bad Deals at Foreclosure Auction a Boon for Distressed Homeowners The increased competition and higher prices at foreclosure auctions can be good for the homeowners losing their homes to foreclosure because any surplus funds from the auction above and beyond what is owed to lienholders goes to that now-former homeowner, according to Caren Castle, senior attorney at The Wolf Firm, an Irvine, California-based law firm that specializes in foreclosure cases. “It happens all the time … as property values continue to increase,” Castle said of cases she is familiar with in California. Castle provided the example of one recent file with about $100,000 in excess proceeds from the foreclosure auction going to the foreclosed homeowner. An ATTOM Data Solutions analysis of foreclosure auctions in major metro areas in 2016 found that properties selling at auction on average sold for more than their previous sale price — indicating an increased likelihood of excess funds available for the foreclosed homeowner — in six of the 45 metro areas analyzed: San Francisco, Los Angeles, Portland, San Diego, Seattle and Sacramento. In San Francisco, foreclosure auction prices were an average of $97,665 above the previous sale price, while in Los Angeles they were $60,964 higher on average.

Average Discount to Last Sale Price

60%

50%

50%

40%

28%

30%

20%

10%

0% 2000 2002 2004 2006 2008 2010 2012 2014 2016

They’re scraping full blocks in very expensive areas and putting in apartment buildings. And they’re getting what they ask for. … It baffles me when I drive around.”

Chris Richter Co-founder, Audantic real estate analytics, Seattle

ATTOM data shows $3.5 billion in construction loan originations in Seattle in 2016, up 51 percent from the previous year, and $1.1 billion in construction loan originations in the Washington, D.C. metro area in 2016, up 9 percent from the previous year. “They’re scraping full blocks in very expensive areas and putting in apartment buildings. And they’re getting what they ask for,” Richter said. Fewer Deals at Foreclosure Auction The search for value-add inventory has ratcheted up in Seattle and other urban

markets in part because the distressed market with its upfront discounts has largely dried up in many of those areas. And competition is fierce for the distressed properties that are still available, according to Richter, DiMeco and others. Nearly 102,000 single family homes and condos sold to third-party investors at the public foreclosure auction in 2016, down 3 percent from 2015 to a nine-year low, according to ATTOM Data Solutions. But while there are fewer properties available at the foreclosure auction,

Avg Estimated Surplus Funds at Foreclosure Auction in 2016

Market

San Francisco, CA $97,665 Los Angeles, CA $60,964 Portland, OR $53,900 San Diego, CA $43,993 Seattle, WA $18,915 Sacramento, CA $6,364

ATTOM Data Solutions • P4

HOUSINGNEWS REPORT

FEATURED ARTICLE

Distressed Sales Share Short Sales, Bank-Owned Sales and Foreclosure Auction Sales Share of Total Sales

60%

49.4%

50%

... as banks continue to unwind their REO portfolios, I expect foreclosure levels in Seattle to drop even further in the coming months.”

40%

30%

16.9%

20%

10%

0%

Matthew Gardner Chief economist, Windermere Real Estate, Seattle

a record-high percentage are selling to third-party investors rather than transferring back to the foreclosing bank. In 2016, 29 percent of all sales at the foreclosure auction were to third-party investors, the highest share going back to 2000, the earliest data is available. That increased appetite for a smaller slice of the pie is translating into thinner discounts for real estate investors purchasing at the foreclosure auction in some of the more highly competitive markets. Nationwide in 2016, investors realized an average discount of 33 percent below estimated full market value at the foreclosure auction, but in Washington, D.C., Seattle, Phoenix, Los Angeles and Las Vegas that average

discount was less than 25 percent, according to an ATTOM analysis.

Ohio, where the fight against blight is gaining traction thanks to a combination of state legislation, federal regulation and home flippers taking advantage of a recovering housing market, according to Matthew Watercutter, broker of record and senior regional vice president at HER Realtors, covering the Columbus, Cincinnati and Dayton markets in Ohio. Ohio’s new foreclosure fast-track law took effect in late 2016, designed to reduce vacant “zombie” foreclosures that contribute to neighborhood blight. “I think the legislation will help somewhat (but) I think it’s an issue that will need to be addressed more by the federal government,” said Watercutter, noting that while local courts do a good job of

“The Seattle-area economy continues to outperform the rest of the country and the housing market is going gangbusters,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where April foreclosure activity decreased 38 percent from a year ago. “As such, I’m not surprised that foreclosure activity continues to head towards pre-housing bubble averages. In fact, as banks continue to unwind their REO portfolios, I expect foreclosure levels in Seattle to drop even further in the coming months.” Flippers Profit in Fight Against Blight The drying up of the distress market is even showing up in hard-hit states like

ATTOM Data Solutions • P5

HOUSINGNEWS REPORT

FEATURED ARTICLE

In addition to local, state and federal government policy efforts to reduce blight, a market-driven solution is also emerging as home prices recover: home flipping. “It’s a great way for properties to be bought from a lender or from a seller who has deferred maintenance and to put them in a position where they are move-in ready,” said Watercutter, who added that homebuyers should carefully check the quality of work before purchasing a home flip. Ohio homes flipped in 2016 represented 5.6 percent of all single family home and condo sales during the year, up 11 percent from the previous year,

according to the ATTOM Data Solutions 2016 U.S. Home Flipping Report, which also shows Ohio home flips yielded the second highest average gross flipping profits in the year. Providing Move-In Ready Inventory The higher gross flipping profits in Ohio were available thanks to higher inventory of older properties available at deeper discounts and ripe for value- add opportunities such as the addition of square footage. Ohio homes flipped in 2016 were built in 1966 on average (compared to 1979 nationwide) and had an average square footage of 1,356 (compared to 1,422 nationwide),

moving foreclosure cases to the sheriff’s sale quickly, the slowdown in the process often comes after the bank repossesses the property at the sheriff’s sale. Bank-owned (REO) homes represented 10.2 percent of all home sales statewide in Ohio in Q1 2017, down 17 percent from a year ago, according to the ATTOM Data Solutions Q1 2017 U.S. Home Sales Report. Conversely, the share of sales sold directly to real estate investors at the sheriff’s sale jumped 38 percent from a year ago to account for 6.1 percent of all home sales in the first quarter — an indication banks are more willing to sell at the foreclosure auction rather than take the property back.

Home Flipping Property Characteristics

Median age

Median square footage

40

1,490

1,480

37

35

1,470

30

1,460

25

1,450

1,440

20

1,430

15

1,420

10

1,410

5

1,400

1,390

0

2000 2002 2004 2006 2008 2010 2012 2014 2016

ATTOM Data Solutions • P6

HOUSINGNEWS REPORT

FEATURED ARTICLE

according to ATTOM data. Ohio homes flipped in 2016 were purchased by the home flipper at an average 44 percent discount below estimated “after repair” market value, compared to an average 26 percent discount nationwide. “We have a lot of flipping going on here and it’s mostly been positive,” said Watercutter, adding that typically neither the home seller nor homebuyer have the

According to Watercutter, home flippers are simply taking advantage of creating like-new inventory of homes that are move-in and rent-ready in a market without many new homes being built. “New home construction almost completely stopped several years ago and it just recently started. There is a lack of new move-up inventory to buy,” he said, adding that some of the other good- condition inventory in Ohio is locked up because of the relatively high share of homeowners still underwater. “Some owners have not seen the value come back to where it needs to be where they can sell … and so they are still not able to sell due to those circumstances.”

resources and time to perform the type of rehab needed to get homes in condition to sell at or above full market value. The downside of flipping, Watercutter noted, is that it removes potential wealth from the original homeowner. “Really does take wealth out of people’s pockets. Takes it out of the pocket of the homeowner and puts it in the pocket of the flipper,” he said.

We have a lot of flipping going on here and it’s mostly been positive. … Really does take wealth out of people’s pockets. Takes it out of the pocket of the homeowner and puts it in the pocket of the flipper.”

Matthew Watercutter Broker of record and senior regional vice president, HER Realtors, Columbus, Ohio

Builders Are Coming Back ATTOM Data Solutions shows 3,749

ATTOM Data Solutions • P7

HOUSINGNEWS REPORT

FEATURED ARTICLE

$20 Billion in Distressed Loan Sales

$13,484,688,271 Unpaid Principal Balance

If you are a property guy and not a note guy, you are saying ‘there’s no inventory, (but) it’s hard to argue with $20 billion in distressed notes selling in the last 20 months, and that’s just the ones reported in the press.”

Non-Performing Loans Sold

80,796

FHA/HUD

$8,457,000,000 Unpaid Principal Balance

Non-Performing Loans Sold

41,649

Eddie Speed Founder of NoteSchool Southlake, Texas

construction loans were originated in Ohio in 2016, up 10 percent from 2015 to the highest level since 2008. Total dollar volume of those construction loans was more than $1.2 billion, up 15 percent from less than $1.1 billion in 2015. The number of construction loans secured by vacant land in Ohio increased 80 percent, while the dollar volume of those loans increased 121 percent from 2015 to 2016. Builders and developers acquired more vacant land in Ohio for residential development in 2016. Sales of residential vacant land in the state increased 9 percent in 2016 compared to 2015, compared to an increase of 2 percent in single family home sales over the same time period, according to ATTOM data. DiMeco is observing a similar upward trend in new development in Boston, and he believes that will help ease the

inventory constraints placing upward pressure on home prices there. “The good news is there is a ton of building going on in Boston,” said DiMeco, ”They are doing a ton of new development … that will slow down the inflation in the market, it will help that out.” Statewide in Massachusetts sales of residential vacant land increased 65 percent in 2016 compared to 2015 to a new all-time high as far back as data is available, according to ATTOM Data Solutions. In Boston, residential vacant land sales increased 81 percent during the same time period compared to a 1 percent decrease in both single family sales and condo sales. $20 Billion in Distressed Notes Although the most public face of distress — foreclosure auctions and bank-owned sales — have become highly competitive,

there are still distressed deals available for those willing to think creatively, according to Eddie Speed, founder of NoteSchool, a company that trains investors how to buy “notes” or mortgages. “If you are a property guy and not a note guy, you are saying ‘there’s no inventory,’” said Speed, explaining that many of the big banks and government sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) — have been steadily selling off billions of dollars of delinquent loans to investors rather than foreclose on those loans themselves. “It’s hard to argue with $20 billion in distressed notes selling in the last 20 months, and that’s just the ones reported in the press. … Everyone knows there is a big pile of inventory. Fannie, Freddie and FHA have admitted to $100 billion.”

ATTOM Data Solutions • P8

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FEATURED ARTICLE

Many of the distressed loans were sold in large portfolios to hedge funds and private equity firms, but those companies end up selling off a portion of those portfolios to mom-and-pop investors who may only be interested in buying a handful of distressed loans rather than hundreds or thousands, according to Speed. “Every asset in their portfolio is not going to fit their long-term strategy,” he said. “They are buying the portfolios … they have to figure out what to do with them.” The latest report available from the U.S. Department of Housing and Urban Development (HUD) shows that through October 2016 nearly 81,000 non- performing loans were sold through its Distressed Asset Stabilization Program (DASP) with a cumulative unpaid principal balance of $13.5 billion.

the agency that oversees Fannie Mae and Freddie Mac, shows the two enterprises had sold nearly 42,000 non-performing loans with an aggregate unpaid principal balance of $8.5 billion through May 2016. Redefining Distress Speed is looking beyond the distressed note market to find other pockets of opportunity for investors. His next target involves providing seller financing for “turnkey” rental properties in low-value housing markets. “(In) Birmingham, Buffalo, Kansas City, where you see these working class turnkey properties … I’ll sell a house at a 10 cap (rate),” Speed said, explaining the properties, neighborhoods and tenants all come pre-vetted for the passive investor purchasing the rental. “If it sells for 80 grand, I pretty much guarantee he’s going to get the ‘slow no’ at the bank. … Instead of paying all cash, he pays half cash and I’ll finance the other half. In six

years at 6 percent interest that loan will fully amortize. That investor will have a free and clear house in six years.” A total of 2,598 single family homes nationwide were purchased with seller take-back loans in 2016, up 41 percent from 2015 to a four-year high, according to ATTOM Data Solutions. The combined value of those loans was $324.9 million, up 62 percent from 2015 to a six-year high. “What’s distressed is houses that aren’t conventionally financeable. … You’re telling me that a cash market is an efficient market in real estate?” Speed continued. “I understand the power of providing a loan when the bank says no.”

The latest report available from the Federal Housing Finance Agency (FHFA),

ATTOM Data Solutions • P9

HOUSINGNEWS REPORT

MY TAKE

GSE Reform: Balancing Competing Priorities

Michael Fratantoni

BY MICHAEL FRATANTONI, MORTGAGE BANKERS ASSOCIATION

Michael Fratantoni is MBA’s Chief Economist and Senior Vice President of Research and Industry Technology. In this role, he is responsible for overseeing MBA’s industry surveys, benchmarking studies, economic and mortgage originations forecasts, industry technology efforts, and policy development research for both single- family and commercial/multifamily markets. Additionally, Fratantoni is president and member of the Board of Directors of MISMO, serves on the CSP’s Industry Advisory Group, and is chair of the membership committee of MERS.

MBA’s Task Force for a Future Secondary Mortgage Market was created in March 2016 and directed to develop a proposal that will address the future of the secondary mortgage market. The members of this task force are made up of individuals from MBA member companies representing a broad cross- section of the residential and multifamily real estate finance sectors, including

entities of varying sizes and business models. The comments below describe how the task force balanced competing priorities in arriving at this proposal. These priorities included protecting taxpayers, maintaining access to credit and low costs for consumers, and establishing a viable business model that can attract substantial private capital into the housing finance system.

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MY TAKE

The regulator should have the authority to set specific capital levels, both risk-based and overall leverage limits/ratios. These capital requirements for the Guarantors, including the types of instruments that count as capital, should be consistent with the capital requirements for single- family and multifamily mortgages set for banks and other competing investors in mortgages such as insurance companies, in order to ensure that similar risks require similar capital, regardless of where those risks are held. The capital base for the requirement should primarily be comprised of Tier 1 capital, i.e., common and preferred equity, but should also provide capital relief to the Guarantors for distributing rather than retaining credit risk, so long as this is done on an economically sensible, equity equivalent basis.

MBA’s Task Force considered many potential models in developing its recommendations for a new secondary market system. The resulting proposal is intended to preserve what works in the current system — namely it supports a highly competitive primary mortgage market comprised of lenders of a variety of sizes and business models. All of these primary market activities take place on one side of the bright line, the dividing line between primary and secondary market activities. From a lender’s perspective, the process of selling conventional conforming loans should be similar to the current process. Lenders could sell through a cash window or pool loans into securities. The Guarantors, including rechartered

the credit risk on these pools, and would be the issuers of the mortgage backed securities (MBS). Single-family securitizations would utilize the Common Securitization Platform (CSP), at which time an explicit guarantee is placed on the MBS for the benefit of investors, ensuring timely payment of principal and interest. A portion of the guarantee fee would be used by the Guarantors to cover a premium to pay for the government backstop, and these premiums would build up a Mortgage Insurance Fund (MIF) over time. Investors will trade single-family MBS through a market similar to today. Each of the Guarantors would issue into a single security. Most likely, the single security would be structured the same as the forthcoming Uniform MBS (UMBS), but will also have an explicit guarantee.

Fannie Mae and Freddie Mac and any new entrants, would manage

MBA’s Task Force considered many potential models in developing its recommendations for a new secondary market system. The resulting proposal is intended to preserve what works in the current system -- namely it supports a highly competitive primary mortgage market

comprised of lenders of a variety of sizes and business models.”

ATTOM Data Solutions • P11

HOUSINGNEWS REPORT

MY TAKE

3. To achieve this objective, investors would want to ensure that capital requirements are not too high, regulation and supervision is not too expensive, credit standards are sound and efforts to make housing more affordable do not impinge significantly on returns. Being able to issue MBS with a government backstop, even if the backstop is paid for through insurance premiums, is a business benefit because the backstop ensures the market will stay open during financial market disruptions. 4. Consumer Cost and Access to Credit: Homebuyers and borrowers are concerned with the all-in cost of obtaining financing. Higher capital requirements, more costly regulation and affordable-housing fees all add to consumer costs. Higher consumer costs, however, would likely be

In evaluating any proposal for GSE reform, three major objectives must be balanced: protecting taxpayers, attracting capital to Guarantors, and ensuring consumers and borrowers have access to affordable financing.”

In evaluating any proposal for GSE reform, three major objectives must be balanced: protecting taxpayers, attracting capital to Guarantors, and ensuring consumers and borrowers have access to affordable financing. Pushing too far in any direction may result in some of the objectives being missed. 1. Taxpayer Protection: The system should greatly reduce the likelihood that it would require taxpayer support in all but truly catastrophic,

potential losses, a clearly defined government backstop, strict regulation and supervision, a well- defined credit box and carefully targeted efforts to make housing more affordable. 2. Investor Returns: To generate the large amount of private capital required to fund such a system, the Guarantor business model and expected returns through the cycle need to be attractive. That is, private investors in the Guarantors would have a reasonable expectation of a market rate of return on a risk- adjusted basis.

systemic events. In order to accomplish this objective, the system should have significant private capital in place to absorb

ATTOM Data Solutions • P12

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MY TAKE

higher consumer and borrower costs. Guarantee fees are likely to be modestly higher than today given the increase in private capital required at the Guarantor level. However, moving to an explicit federal guarantee should increase the value of MBS, offsetting some of the higher costs to consumers. Ultimately the system will be more stable over time and hence the mortgage market will be available to consumers, even during severe downturns — a benefit that is worth the trade-off of modestly higher costs. Balancing competing priorities is always challenging. Leaning too far in any direction may result in missing other highly important goals. MBA’s proposal provides a workable solution that protects taxpayers, maintains access to credit for borrowers, and will attract significant private capital into the market. Ultimately the system will be more stable over time and hence the mortgage market will be available to consumers even during severe downturns ...“

Get all the Facts Before You Buy

offset by a move to an explicit government guarantee of eligible MBS, as evidenced by the spread between prices on Ginnie Mae and GSE securities. Of course, not being able to get a loan — either because of tight credit criteria, increased costs or market disruption — has a negative impact as well. Roughly one-third of existing-home sales today go to first-time homebuyers, down from a historical average closer to 40 percent. One of the primary causes for this drop-off is the higher costs and tighter credit environment in today’s mortgage market. For first-time buyers and others on the margin, a tighter credit box can mean being shut out of the market altogether. Efforts to extend affordability and access to underserved borrowers are one of the items that FHFA or its successor would closely monitor in the system we envision. Under our proposed model, higher capital standards for the Guarantors and increased levels of private capital at risk would produce somewhat

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BIG DATA SANDBOX

zip codes with the highest share of underwater homes and highest share of equity rich homes in the nations’s 10 largest metros

There were nearly 5.5 million seriously underwater properties representing 9.7 percent of all U.S. properties with a mortgage, according to the ATTOM Data Solutions Q1 2017 U.S. Home Equity & Underwater Report. The percent of properties underwater is down from 12.0 percent a year ago but on the flip side equity rich properties are on the rise. There were over 13.7 million equity rich properties in the U.S., representing 24.3 percent with a mortgage, up from 22.0 percent a year ago. In looking at the largest metro areas in the U.S., we found the top ZIPs that are drowning vs. those ZIPs where equity is saturated.

ZIP CODES SERIOUSLY UNDERWATER (LTV 125+)

ZIP EQUITY RICH (LTV 50 or Lower)

The ATTOM Data Solutions U.S. Home Equity & Underwater report provides counts of residential properties based on loan to value (LTV) ratios at the state, metro, county, city and ZIP code level. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data. A seriously underwater property has an LTV ratio of 125 percent or above, meaning the owner owes at least 25 percent more than the estimated market value of the property. An equity rich property has an LTV ratio of 50 percent or below, meaning the owner owes 50 percent or less of the estimated market value of the property.

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SPOTLIGHT: NORTH CAROLINA

Flipping Out in the Tar Heel State

BY JOEL CONE, STAFF WRITER

North Carolina sports fans had to be flipping out after their University of North Carolina Tar Heels won the N.C.A.A. men’s basketball championship during this year’s March Madness. This is the team’s sixth national championship, and with this win they became only the fourth team in N.C.A.A. history to come back and win the national title just a year after losing the championship game.

Flipping out is fine for the crazed fans of the Tar Heels, NASCAR, the Charlotte Hornets, Carolina Panthers or any other local sports team. People love to see their favorite team win. But for real estate investors, it’s not so great when looking for a good margin on the purchase side in order for an investment property to pencil out.

Flipping — as an investment strategy — may indeed be out in North Carolina for the most part due to the lack of properties and increased competition around the state. Especially considering that increasing population numbers are directly affecting the supply and demand equation and therefore ramping up the level of competition for properties on the market.

ATTOM Data Solutions • P16

HOUSINGNEWS REPORT

SPOTLIGHT: NORTH CAROLINA

Bidding wars are back in vogue in just about every major market around the state, particularly at the low end of the pricing spectrum — the investor’s sweet spot — while higher-priced properties tend to sit on the market longer and with much less competition. “We only have a two months, inventory at the investor’s sweet spot,” says Realtor Rob Loschiavo, who lives and works in the Raleigh-Durham metro area. “If they’re looking to flip a property and going with

the standard 70 percent equation (70 percent of market value minus repairs) you can’t get a property for that. We also have first-time homebuyers. Different groups shopping for the same spots.“

5.8 percent from 2011. Seventy percent of all flips in the state were purchased with cash, at a median purchase price of $100,000, a 30.6 percent discount, and sold for a median $152,500, a 52.5 percent gross return on investment. “The people who have the advantage here are the ones that have rehab teams in their back pockets or can do the repairs themselves,” Loschiavo said. Population Growth Puts Pressure on Housing Stock The way the state’s population is growing, chances are that competition for existing and new housing stock is only going to intensify over time.

That is not to say that flipping properties is a total no go in North Carolina.

According to data released by ATTOM Data Solutions, flips accounted for 4.7 percent of all home sales statewide during 2016, up 3.3 percent from 2015, but down

The people who have the advantage here are the ones that have rehab teams in their back pockets or can do the repairs themselves.”

Among the states, North Carolina ranks ninth in total population with more than

Rob Loschiavo Wake County-based broker with The Virtual Realty Group

North Carolina Home Flipping Trend

Single Family Home and Condos Flipped

Home Flipping Rate (Pct of Total Sales)

9,000

8.0%

8,000

7.0%

7,000

6.0%

6,000

5.0%

5,000

4.0%

4,000

3.0%

3,000

2.0%

2,000

1.0%

10,000

0.0%

--

2000 2002 2004 2006 2008 2010 2012 2014 2016

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SPOTLIGHT: NORTH CAROLINA

We have 100 counties, one-third of which have lost population. Now we’re a majority urban state with increasing population and increasing density.” Dr. Michael Walden Neal Reynolds Distinguished Professor at North Carolina State University

10.1 million residents. Between the 2010 census and 2016 estimates by the U.S. Census Bureau the state’s population has grown by 6.41 percent, making it the 13th fastest growing state in the country. According to a February 2016 report from the University of North Carolina Chapel Hill’s Carolina Population Center, the state’s population is projected to jump another 20 percent by 2035 to more than 12 million people. “We are a state where there’s been a migration,” said Dr. Michael Walden, the William Neal Reynolds Distinguished people move here from the Northeast and the Midwest. Plus there’s been a redistribution of the population over time. We have 100 counties, one-third of which have lost population. Now we’re Professor at North Carolina State University (NCSU). “We are seeing

Federal Reserve Bank (FRB) of Richmond reported that “economic activity in North Carolina generally picked up… with an increase in payroll employment, improvements in household conditions, and positive housing market reports.” “Over the last two years job growth in North Carolina has been running higher than the nation,” said Dr. Walden from NCSU. “We have the same issue as the nation – jobs are being created at the high end (professional jobs requiring college degrees), and at the low end (particularly leisure and hospitality); with the slowest growth in the middle (manufacturing).” During the fourth quarter of 2016, the FRB of Richmond reports that real personal income rose statewide both on a quarterly and annual basis.

a majority urban state with increasing population and increasing density.”

The Carolina Population Center study also projects that 68 percent of all new growth in the state through 2035 will be equally divided between its two biggest metros -- the Research Triangle of Raleigh-Durham and Charlotte. Another 10 percent will go to the Triad metro area which includes Greensboro, High Point and Winston-Salem. The report also notes that in the next 20 years, half of the state’s new residents will be age 65 or older. And while Baby Boomers represent the largest adult generation in the state, by the end of 2017 it is expected that Millennial adults will outnumber Boomers.

The Economic Reality In its April 2017 issue of “Snapshot,” the

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SPOTLIGHT: NORTH CAROLINA

Unemployment continued its downward trend to 4.9 percent in March 2017, according to the Bureau of Labor Statistics. For March 2017, existing home sales in the state totaled 13,505 units, a 21 percent increase over March 2016 and 56 percent above the number of units sold the previous month. Home prices rose 6 percent over the same time period a year ago to $201,172, according to sales data released by the North Carolina Association of REALTORS (NCAR). The total number of distressed home sales statewide declined 20 percent between the first quarter of 2016 and first quarter 2017, according to ATTOM Data Solutions.

even on the new home side, although he estimates that investors represent no more than 10 percent of the business. “We’re underbuilt. What’s missing here is the lower price point. The entry level market is undersupplied,” Colvin said. The FRB Richmond’s April report noted 4,898 new residential permits were issued statewide in February, up 13.8 percent from the month before and a 27.3 percent increase over February 2016, with the most permits issued in the Charlotte metro area. Statewide housing starts were also up substantially in February, totaling 70,500, up 16.2 percent from the previous month and up 35.3 percent from a year ago. To Flip or Not to Flip Loschiavo said it’s hard enough to find properties at full price, let alone flip them. “What I have heard is the safer place for investors to be right now is in rentals,” he said. “Buy it and hold it and get a reasonable rate of return.

Commenting in his press release for the April 2017 NCSU Index of North Carolina Economic Indicators, Dr. Walden noted that “the trend in the Index this year suggests a gradual increase in the state’s economic growth in coming months. With the housing market continuing to tighten — especially in metropolitan areas — new residential construction will increase its role in leading economic growth.” While Charlotte and Raleigh-Durham make up about 75 percent of the state’s employment growth, the Triad metro area is growing the fastest on a percentage basis, according to Jay Colvin, regional director for Metrostudy in Raleigh- Durham, Charlotte and the Triad. Colvin said with such low inventory his firm does see a fair amount of investor activity

What’s missing here is the lower price point. The entry level market is undersupplied.”

Jay Colvin Regional director at Metrostudy for Raleigh-Durham, Charlotte and Triad region of North Carolina

March 2017 Home Sales

March 2017 Home Prices

13,505

$201,172

21% Increase comparing to March 2016

6% Increase comparing to March 2016

Source: North Carolina Association of REALTORS.

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SPOTLIGHT: NORTH CAROLINA

Let the property ride. The appreciation rates here aren’t very exciting. You’re really looking to hold that property for cash flow and have the renter pay the mortgage. Compared to a bank account that gives you nothing, it’s not terrible.” For veteran real estate investor Larry Goins, North Carolina is not a growth market in the same way as Las Vegas, Denver, Phoenix or California. “Typically in the Carolinas — like in a lot of the heartland — you’re not buying for appreciation. The way most investors look at the Carolinas is buy it, put some sweat equity into it, and rent it out,” said Goins who lives in South Carolina but has worked both Carolinas for many years. That’s not to say there are no areas in the state that attract investors for their appreciating values. The Raleigh-Durham

he explained it, a lot of times those investors aren’t local.

South Carolina every day and some MLS homes too,” he countinued. “I’m just making offers based on my formula and what I think I can pay for a property. I’m getting them accepted in the smaller towns, and not getting them accepted in the bigger areas because of the competition.” When he does land a deal these days, Goins either wholesales the property out to another investor, does a lease option deal or sells it using seller financing. Crazy in Charlotte Being in a seller’s market, Realtor Tijuana Smith with Coldwell Banker in Charlotte prepares her buyer clients for dealing with the pressure of having a bidding war on every property. “It’s crazy right now. Under $100,000 it’s definitely a war zone,” Smith said. “Selling is automatic. Buyers are competing with

Local investors are looking to buy at a discount because the home needs repairs. They put some sweat equity into it to fix it up, and then hold onto the property and rent it out — maybe eventually flipping it in a few years. Goins focuses his attention on buying HUD properties directly from the MLS. His strategy these days, as he puts it, is to “go deep or go wide.” “Going deep means to dig deeper in that market to find deals in the area,” he said. “You may have to use multiple ways to find deals. If more people are buying from HUD and off the MLS, I’m going to have to use bird dogs, bandit signs and run my own ads.”

and Asheville areas are examples he points to in that regard. Still, as

“Going wide means I continue to make offers on every HUD house in North and

Typically in the Carolinas –- like in a lot of the heartland –- you’re not buying for appreciation.”

Larry Goins Investor and Founder of The Goins Group

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SPOTLIGHT: NORTH CAROLINA

$181,500 3,965 $271,351 8% Increase comparing to Q1 2016 Charlotte Metro Area Median Sales Price Q1 2017 Number of Units Sold in Charlotte March 2017 Average Home Cost March 2017 22% Increase comparing to March 2016 10% annual increase

Source: ATTOM Data Solutions, North Carolina Association of Realtors

investors all declined during the quarter. Total distressed sales in the market were down 22 percent compared to the same quarter last year.

It’s crazy right now. Under $100,000 it’s definitely a war zone. … Now there’s so many offers, and the offers are going over asking price, so investors have to up their price.”

Flips accounted for 5.1 percent off all total home sales in Charlotte in 2016.

Tijuana Smith Realtor, Coldwell Banker, Charlotte

For March 2017, the NCAR reported 3,965 units sold in Charlotte, a 22 percent increase over March 2016. Average home cost for the month was $271,351, a 10 percent annual increase. Rapidly Rising in Raleigh-Durham Similar to the Charlotte metro, the Raleigh-Durham housing market “is going pretty crazy right now,” according to Brian Peters, a broker with Fonville Morisey Realty’s Stonehenge office in Raleigh. Peters said that any home priced under $300,000 that is in good condition gets multiple offers and doesn’t stay on the market long. So it is tough for first time homebuyers to find anything in the starter home price range given the level of competition out there.

investors. At one point the market was working in investors’ favor because they were coming in with cash. Now there’s so many offers, and the offers are going over asking price, so investors have to up their price.” Smith tells her buyer clients they may need to bid on around four properties before actually getting an accepted offer –- especially if the buyer is looking below $200,000. So whether they are traditional home buyers or investors, she advises her clients to consider looking at surrounding areas.

for so they can overbid. It’s not as bad on the outskirts. Most people are okay with a 20- to 30-minute commute.” Smith also noted that there is quite a bit of new construction going on in Charlotte -– particularly condos, apartments, some retail, and a lot of mixed use. The median sales price in the Charlotte metro area for the first quarter of 2017 was $181,500, an 8 percent increase from the same quarter last year, but still below the $191,500 median price at the market’s peak in the third quarter of 2016, according to ATTOM Data Solutions. Also, the percentage of FHA sales, cash sales and sales to institutional

“Sometimes they have to look at houses for less than what they’ve been approved

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SPOTLIGHT: NORTH CAROLINA

“With first timers, a lot of them would like to have something at a lower price point,” he said. “They’re not going to find a detached home for under $200,000 unless it’s in bad shape and needs a lot of work. “You also have a lot of investors coming in and even those are competitive to rehab properties, plus land prices have gone up. It makes having a buyer a real challenge,” Peters said. “It’s much easier if you’re looking at something for $400,000 and up.”

dynamics of what you can buy,” he said, adding that just a couple of years ago an investor could buy at $200,000 and fix up and sell for $300,000. Now that same property is much more expensive out of the gate. “Now you buy, manage the property for a certain time, then down the road come back and fix them up and sell them. You’ve rented them out and managed them and you’ve created your own inventory for later.”

the Durham-Chapel Hill metro area and down 28 percent in the Raleigh metro area compared to a year ago. A total of 3,353 units were sold in the Triangle area (including new homes), a 21 percent increase for March 2017 compared to the same month last year. Average sales cost was $276,912, a 7 percent annual increase, reported the NCAR. Trying in The Triad Comprised of the Greensboro-High Point and Winston-Salem metro areas combined, the Triad is the third largest population center in the state. NCAR reported the sale of 1,742 units in the Triad during March 2017, up 16 percent from March 2016. The average home cost during the month was $180,516, an 11 percent annual increase. For the first quarter of 2017, ATTOM Data Solutions reported that housing affordability is still better than historic norms in all areas of the Triad. Flipped properties accounted for 5.2 percent of total home sales in Greensboro-High Point for 2016, and 5.7 percent of all sales in Winston-Salem. For the first quarter of 2017, FHA sales in Greensboro-High Point were down 18 percent, and cash sales were down 4 percent while sales to institutional investors rose 10 percent for the period.

With first timers, a lot of them would like to have something at a lower price point. They’re not going to find a detached home for under $200,000 unless it’s in bad shape and needs a lot of work.”

Brian Peters Broker, Fonville Morisey Realty, Raleigh

With room to build and land prices rising, Peters said it’s impossible for builders to come in and put up a project at the $200,000 price point. With limited space he is seeing a lot of older neighborhoods with homes being torn down and two to three houses being built on the same lot. “Definitely a large amount of business has been investors. For a long time when the market was switching you were able to buy properties and flip them. It’s so competitive now that it’s changed the

According to ATTOM Data Solutions, the median sales price in Raleigh rose 11 percent for the first quarter of 2017 to $232,000 compared to the same quarter a year earlier. In Durham, the median sales price was up 3 percent year-over-year to $190,000. Flips accounted for 5 percent of all home sales in Durham-Chapel Hill in 2016 and 4.4 percent of all home sales during the year in Raleigh.

In Winston-Salem, FHA sales were down 8 percent, cash sales were up 5 percent,

For the first quarter of 2017, total distressed sales were down 17 percent in

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