U.S. Home-Flipping Trends
the government programs expired. The Mortgage Bankers Association noted that mortgage delinquencies dipped below normal levels—down to 3.65%—at the end of the first quarter. Black Knight reported that delinquency rates dropped to a nearly historic low of 3.12% in June. Fewer delinquencies generally means fewer foreclosures, and the data supports this. According to a report from ATTOM on first half 2023 foreclosure activity, there were slightly more than 185,000 foreclo- sure actions in the first six months of the year, representing a 37.5% decline from the same period in 2019, before the pandemic. Foreclosure starts were recovering more quickly, at about 80% of pre-pandemic levels, but only about 50% as many properties were going to foreclosure sales according to an analysis done by Auction.com. Bank repossessions were off from 2019 levels by about 70%. What’s happening to all those properties between the first notice of default and the ultimate foreclosure? It turns out that, according to data from ATTOM, about 92% of home- owners in foreclosure have positive equity in their homes—a lot of equity. Just over 88% of homeowners in foreclosure have at least 20% equity, and thousands have 50%, 75%, or more. These financially distressed homeowners are opting to sell their homes before the foreclosure auc- tion in order to protect that equity. An analysis by Daren Blomquist, Auction.com’s vice president of market economics, estimates that almost two-thirds of distressed property sales today are selling during the pre-foreclosure period. For investors looking for distressed properties, this isn’t a rosy scenario: fewer delinquencies, fewer defaults, fewer properties going to auction, and even fewer properties not
SINGLE FAMILY HOME AND CONDOS FLIPPED
HOME FLIPPING RATE (PCT OF TOTAL SALES)
140,000
10.0%
9.0%
120,000
8.0%
100,000
7.0%
6.0%
80,000
5.0%
60,000
4.0%
3.0%
40,000
2.0%
20,000
1.0%
0
0.0%
selling at those auctions and ultimately being repossessed by the lenders. Although the inventory of homes for sale is constrained, the inventory of distressed properties is almost non-existent. WHAT DOES THE ROAD AHEAD LOOK LIKE FOR INVESTORS? None of these trends has been particularly helpful for real estate investors, and their mood and activity reflect this. In RCN Capital’s Spring 2023 Investor Sentiment Survey, 76% of investors said that today’s environment for investing was no better, worse, or much worse than it was a year earlier. Not surprisingly, these investors also pointed to the high cost of financing and limited inventory as their biggest challenges. About 24% also cited difficulty in securing a loan. Investors also noted that they’d had to adjust their business models to changing consumer behavior;
83% said that they’d seen demand for owner-occupied homes weaken and demand for rental properties increase once mortgage rates rose. This may be why a majority (53%) of the survey respondents were buying and holding properties as rentals while less than one-third (29%) were flipping homes. ATTOM’s report on home flipping backed this up. Just over 70,000 homes were flipped in the first quarter of 2023, the lowest number in more than two years, and the fourth consecutive quarter with fewer flips than the quarter before. Even the single-family rental (SFR) market wasn’t immune from some problems. According to data from Beekin, asking rents on SFR homes was down a little over 2% year-over- year, although this decline wasn’t universal. States like California saw larger declines, while others (e.g., Florida) saw modest increases. All is not doom and gloom though. In its first quarter flipping report, ATTOM noted that for the first time
42 | think realty magazine :: september – october 2023
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