Housing sales help drive portfolio growth in the mortgage pool fund industry by increasing demand for fix-and-flip loans. A mid-year review of housing sales indicates a strong real estate market is fueling record levels of mortgage lending. Sales of single-family homes rose 10.1 percent in the first six months of 2016, causing mortgage originations to hit a five-year high. According to Freddie Mac, $535 billion of mortgages were originated in the second quarter of 2016, the highest volume since 2013, and mortgage demand is projected to top $2 trillion this year, the highest level since 2012.
Housing Sales Hit Nine-Year High
Compared with last year, housing sales rose 25.4 percent in June to a seasonally adjusted monthly rate of 592,000 homes, the strongest monthly showing since 2008. Meanwhile, economists had been expecting only 559,000 homes to be sold in June, according to the Wall Street Journal. This strong showing followed an upward revision in May to 572,000 homes sold, exceeding earlier expectations of 551,000 homes.
By July, sales of single-family homes had reached their highest level in nearly nine years. Demand increased across many regional markets and sales were up 12.4 percent from one year earlier to a seasonally adjusted rate of 654,000 homes per month.
Previously-owned homes accounted for the majority of sales and represented approximately 90 percent of all home purchases. June sales of previously-owned homes rose 3 percent to an annual rate of 5.57 million, the strongest sales pace since February 2007, according to the National Association of Realtors.
Robust sales are causing the inventory of available homes to shrink, which in turn is fueling a surge in new construction. Groundbreaking on new single-family homes achieved a five-month high in July. The housing inventory shrunk 2.9 percent in July to only 233,000 units, the lowest supply since last November. At July’s pace, the existing inventory would be cleared in just 4.3 months, making this the tightest housing supply since 2013.
Median Home Prices Reach All-Time High
A constrained housing supply is putting upward pressure on home prices and rents. Between May and June, the median selling price for a home jumped 6 percent and home prices in 2016 are averaging 9 percent higher than one year ago. Median selling prices hit an all-time high of $231,000 in June, according to RealtyTrac, and exceeded the previous peak of $228,000 that was achieved 12 years ago. In addition, June marked the 52nd consecutive month in which median home prices have increased on a year-over-year basis.
Enticed by rising home prices and continued low mortgage interest rates, fix-and-flip investors are ramping up investments in new properties. This is a positive development for mortgage pool funds and other non-bank lenders who provide the financing for purchasing and renovating investment properties. Fix-and-flip investors also benefit from the broad-based recovery in home prices. Approximately 30 percent of the regional markets tracked by RealtyTrac posted record sales prices in June. According to RealtyTrac, average home sales prices hit new highs of $240,156 in Dallas, $192,000 in Atlanta, $385,000 in Seattle, $235,950 in Minneapolis and $190,209 in St. Louis.
Appreciation in home prices have helped investors achieve record gross ROIs on flipped homes. The average home seller realized a $41,000 profit on sale, which represented the biggest profit increase since 2007. Properties sold by fix-and-flip investors generated average gross profits of $58,250, a 10-year high and the largest gross flipping profit since 2005. Average gross ROI for fix-and-flip investors increased to 47.8 percent and was the highest flipping ROI since 2012, according to RealtyTrac.
More than 43,740 houses were flipped in the first quarter of 2016, which represented nearly 7 percent of all home sales. The share of flipped homes reached all-time highs earlier this year in nine major metropolitan markets, including Baltimore, Buffalo, New Orleans, Seattle and Bakersfield and San Diego in California.
Record Home Purchases by Investors
Demand for fix-and-flip loans is likely to remain strong in the second half of 2016 as a result of record levels of home purchases by third party investors. According to RealtyTrac, the share of foreclosed homes purchased by third party investors reached its highest level in 17 years in the first half of this year. Third party investors purchased 27 percent of all the properties that were sold in foreclosure auctions. There were 227,473 foreclosure auctions held during the first half of 2016.