Housing Outlook For Summer 2018 (Tough if you're looking to buy a home!)

The summer is shaping up to be a miserable season for many house-hunters.
Home values across the U.S. spiked almost 9 percent last month, marking that fastest pace since the height of the housing bubble in June 2006.
Despite the sharply higher prices, demand from buyers remains strong, thanks to a combination of demographic changes, rising wages and the new tax cut, creating what real estate data site Zillow describes as "a perfect storm." On top of that, new construction has been sluggish, leading to tight inventory.
The median home price in the U.S. rose 8.7 percent to $215,600 in April compared with a year earlier, Zillow found.
Higher mortgage rates add to the challenge of finding an affordable home, and some buyers may be rushing to make a purchase before the Federal Reserve potentially boosts rates again later this year. Fixed rates for 30-year mortgages are now at about 4.66 percent, their highest level since May 2011, Freddie Mac reported on Thursday.
There may be a good news/bad news situation in the months ahead, according to Zillow senior economist Aaron Terrazas.

The housing market may slow later this year as it hits headwinds such as the impact of rising mortgage rates, he said. That may provide a breather for buyers, but may disappoint some home sellers.
"Once mortgage rates get beyond 5.5 percent and closer to 6 percent, there will be a more meantingful headwind to home appreciation," he told CBS MoneyWatch.
In the meantime, prospective buyers should get their finances in order, including boosting their credit scores before securing a mortgage, he said.
"If you can get as high a credit score as possible in the year before you buy, it'll save you a lot of money," he noted.
Research from Zillow found that homebuyers with a "fair" credit score -- or between 640 to 680 -- could pay up to $21,000 more than a buyer with an excellent credit score over the life of the mortgage. Buyers with higher credit scores are rewarded with lower interest rates.
Below are 5 things to know about the housing market.

Home values are appreciating fastest in these cities

Some locations are witnessing faster appreciation than others, Zillow found. The cities experiencing breakneck price gains include San Jose, where home values rose 26 percent in April to a median $1.26 million. Other pricey locations include Las Vegas and Seattle, where home values rose 16.5 percent and 13.6 percent, respectively, last month.

Waiting until late 2018 or 2019 may pay off

Home prices may moderate later this year and in 2019, according to Freddie Mac. The government mortgage finance company said it predicts home prices will rise 7 percent in 2018, but will only increase 3.1 percent next year.

Not all millennials are living at home

The size of the millennial generation -- some 83 million people under age 35 -- guarantees built-in demand for housing, even if their household formation is slower than in previous generations. About one-third of millennials still live with adult relatives -- but that still leaves millions who are on the hunt for their own places.
About 1 million new households will form each year for the next few years, creating pent-up demand for housing, according to Freddie Mac.

Construction isn't keeping up

The single-family housing market isn't keeping up with new homes, according to Freddie Mac. Labor shortages and development costs are to blame for the shortfall, although construction started to pick up late last year, it added.

Existing home buyers are hesitant to sell 

Because there's not enough inventory to meet demand, some home owners are opting to stay put rather than to put their homes on the market. The fear is that they might sell their home quickly, but be unable to find new home to buy. That's stoking a vicious cycle of low inventory, according to Freddie Mac.

Eagle Thirteen Properties/ We Buy Houses Louisville

Is House Flipping finally on the Decline?

House flipping hits decade high, but returns are shrinking

• More and more people are flipping houses, but they are reaping smaller rewards.
• Just more than 207,000 homes were flipped in 2017, the highest in a decade.
• The number of people or companies flipping homes also hit a decade high.

More and more people are flipping houses — the most in 10 years – but they are reaping smaller rewards. High home prices, hot competition and very, very few available homes to buy are combining to make this popular trade ever more risky.
Just more than 207,000 homes were flipped in 2017, according to a new report from Attom Data Solutions, which defines a flip as a property bought and sold in the same 12-month period. That is the highest number of flips in a decade. The number of people or companies flipping homes, 138,410, also jumped to a decade high.
Today's flippers, however, are nothing like those of a decade ago, who used cheap and easy money to finance their trades.

Source: Taylor Denchfield

Taylor Denchfield has been flipping homes since he was 17.

"The surge in home flipping in the last three years is built on a more fundamentally sound foundation than the flipping frenzy that we witnessed a little more than a decade ago," said Daren Blomquist, senior vice president at Attom Data Solutions. "While financing for flippers has become more readily available in recent years, 65 percent of flippers still used cash to buy homes flipped in 2017, nearly the reverse of 2004 to 2006, when 63 percent of flippers were leveraging financing to buy."
Today's flippers are seeing bigger gross flipping returns in dollar figures because they're dealing with much higher home prices and margins, but they are also putting more money into the projects, making the net return lower. The average gross flipping return on investment last year was 49.8 percent, down from 51.9 percent in 2016.
Taylor Denchfield has been flipping homes in Maryland since he was 17. At 25, he's a veteran with a strict strategy for profit. His net returns are about 30 percent per project.
"I'm a real estate agent so I'm able to both buy and sell the deals myself saving on the listing commission. I'm a builder, so I do have all the contractors and staff in-house to complete everything from start to finish. And I do have contacts to source off-market deals. Three of those things combined is really what permits me to be more profitable than some others," he said.
Denchfield purchased a small home in Silver Spring, Maryland, a suburb of Washington, last September. He put about $80,000 worth of work into it, and the bet paid off. He sold the property in two weeks and expects to make a net profit of about $100,000.
"You have to be able to get in for a low enough price, it has to be a hot enough neighborhood and you have to know exactly what the build is going to entail," he said.
Denchfield does use leverage for some of his deals, and private lending for house flipping is now a growing trade. While Fannie Mae will back as many as 10 investor loans per flipper, it is still very strict with underwriting, so flippers are increasingly going to private lenders.
"There is more capital available now," said Bobby Montagne, CEO of Walnut Street Finance, a Virginia-based private lender specializing in investor loans. "People are seeing others making profits in this space, so more people are going to join the party."

Above: A new deck added to a flipped house.
Interest rates on these loans, however, are significantly higher than the average rate for regular owner-occupant buyers. Investors can expect to pay 10 to 12 percent rates to private lenders, compared with the average 30-year fixed rate of 4.6 percent for conventional home loans.
"So that's just another thing that really tightens up the margins," said Denchfield.
The popularity of house flipping has been fueled by popular TV shows that make the process look both dramatic and fruitful at the same time. Denchfield warns that is the exception, not the rule.
Today's housing market is increasingly expensive, and there are historically few distressed homes for sale, unlike during the foreclosure crisis at the start of this decade. Seasoned flippers who can find properties that haven't been listed yet will fare better. Some go through wholesalers, others through real estate agent contacts.
There is also a supply crisis, especially on the lower end of the market where flippers usually make their best returns. There are more million-dollar homes available, but the risks there are even higher, given the high investment price.
Flipping returns vary by city. The highest average gross returns last year were Scranton, Pennsylvania (168.2 percent); Pittsburgh (145.5 percent); Baton Rouge, Louisiana (122.9 percent); and Philadelphia (115.7 percent). Cleveland, Baltimore and Buffalo, New York, were also above average.
Flipping rates were highest in Memphis, Tennessee; Las Vegas; Tampa, Florida; Birmingham, Alabama; and Phoenix.