Friday, December 31, 2021
Monday, December 20, 2021
There will be more closed home sales than in 2022 than any year since the 2008 housing crash
According to Zillow economists, 2022 will be anything but slow next year. Zillow says to expect the strong seller market to persist, the Sun Belt to maintain its top spot as the most in-demand region, and flexible work options to continue to shape housing decisions in new ways in 2022. Zillow also makes the following market predictions for 2022 that include:
2022 will fall just short of record-breaking
2021 marked the hottest housing market in U.S. history by some measures, including Zillow's Home Value Index. While we may not see those records broken in 2022, Zillow economists expect incredibly strong price growth and sales volume to continue.
Zillow's forecast calls for 11% home value growth in 2022. That's down from a projected 19.5% in 2021, a record year-end pace of home value appreciation, but would rank among the strongest years Zillow has tracked. Existing home sales are predicted to total 6.35 million, compared to an estimated 6.12 million this year. That would be the highest number of home sales in any year since 2006.
Sellers keep the upper hand
The usual seasonal cooldown in the housing market is reappearing this fall after a hiatus in 2020. Fewer homes are selling above list price, homes are staying on the market a few days longer than they did during the summer, and more sellers are cutting their price.
Zillow economists expect these metrics to trend slightly cooler in 2022, but don't mistake that for a buyers market. The market forces that have given sellers the upper hand over the past two years or so -- tight supply after years of underbuilding, and elevated demand due to remote work, U.S. demographics and low mortgage rates -- will persist next year as well. Expect to see bidding wars on many homes, especially as the market heats up during the spring and summer shopping season.
Large rentals will be in high demand
Rising home values will impact the rental market as well. After a slowdown in the early months of the pandemic, rent prices came roaring back, especially in what were previously some of the most affordable markets. As rising costs make it harder to save for a down payment, expect demand for larger rentals to increase, including for single-family homes, as families stay in the rental market longer.
The 'Sun Belt surge' will extend to secondary markets
2021 was in many ways the year of the Sun Belt. Zillow predicted Austin would be the hottest market of 2021 as part of a "Sun Belt surge," which proved to be the case -- no metro has seen home values grow more than Austin so far this year, and all of the top destinations for long-distance movers were in the Sun Belt.
Zillow predicts this surge will extend to smaller Sun Belt cities in 2022 as price hikes in this year's star markets make more-affordable nearby markets more attractive. From April to August, Austin held the top spot in quarter-over-quarter home value growth, which is a good indicator of current housing demand. As of October, the smaller Florida metros of Fort Myers and Sarasota held the top spots, and 24 of the top 25 markets were in sunny states - a sign of things to come in 2022.
More Gen Zers and millennials will buy a 'second home' before a primary residence
Americans are taking advantage of remote work flexibility to move to larger homes in more-affordable markets, but many will not want to commit to a new location full-time. This is often true for younger people who are attracted to the amenities of living in a city, where expensive housing is more likely to put homeownership out of reach.
With these factors in play, there may be more people buying what's traditionally a second home -- either a part-time vacation home or an investment property -- before they buy a home as a primary residence.
No end in sight for the renovation boom
In the race to buy a home in the ultra competitive pandemic housing market, many buyers have had to make one or more compromises (81%). As prices and mortgage rates rise, expect many homeowners to upgrade their existing home rather than try to wade back into the market to trade up.
A Zillow survey of homeowners found nearly three-quarters would consider at least one home improvement project in the next year. The top projects on their to-do list are renovating a bathroom (52%) or kitchen (46%), adding or improving a home office space (31%), finishing a basement or attic (23%), adding a room (23%) or adding a separate dwelling unit (21%).
Work will play a key role in moving decisions
The rise of flexible work options has changed how heavily a short commute factors into where Americans live. Home buyers used to pay handsomely to live near downtown and reap the benefits of a quick trip to and from the workplace each day, but that dynamic flipped in much of the country last year as buyers prioritized affordability and extra space. In 2022, hybrid and fully remote work will continue to reshape which areas are most in demand as the pandemic winds down and more workers receive permanent guidance on their flexible work options.
Zillow economists expect fully remote workers to continue to seek affordable markets, like those in the Sun Belt and other nontraditional housing hot spots where they can afford to buy their first home or trade up for a bigger one. And amid the "Great Resignation" and a generally aging population, traditional retirement markets are likely to see elevated demand.
New construction gains will only be a drop in the bucket despite best efforts of builders
The reason home prices are rising so quickly is economics 101: high demand and low supply. Zillow research shows that in the 35 largest housing markets alone, there has been a shortfall of 1.35 million new homes since 2008 because of a construction slowdown following the housing crash. Home builder confidence is sky-high, and builders are doing all they can to get houses up, but supply chain snags and labor shortages are limiting progress. The gap shrunk in 2021 and will likely shrink again in 2022, but the housing shortage will be a defining feature of the market once again next year.
According to ATTOM's third-quarter 2021 U.S. Home Flipping Report showing that 94,766 single-family houses and condominiums in the United States were flipped in the third quarter.
Those transactions represented 5.7 percent of all home sales in the third quarter of 2021, or one in 18 transactions, a figure that was up for the second quarter in a row after a year of declines. The latest total marked an increase from 5.1 percent, or one in every 20 home sales in the nation, during the second quarter of 2021, and from 5.2 percent, or, or one in 19 sales, in the third quarter of last year.
But the report also shows that typical raw profits remained below where they were a year ago and, more importantly, profit margins dipped to their lowest point since early 2011.
Among all flips nationwide, the gross profit on typical transactions (the difference between the median sales price and the median paid by investors) stood at $68,847 in the third quarter of 2021. While that was up 2.7 percent from $67,008 in the second quarter of 2021, it was 1.6 percent less than the $70,000 level recorded in the third quarter of 2020.
Profit margins meanwhile, went down for the fourth quarter in a row, as the typical gross-flipping profit of $68,847 in the third quarter of 2021 translated into just a 32.3 percent return on investment compared to the original acquisition price. The national gross-flipping ROI was down from 33.2 percent in the second quarter of 2021 and from 43.8 percent a year earlier, to its lowest point since the first quarter of 2011.
The decrease in the typical profit margin from the third quarter of last year to the same period this year was the largest annual drop since early in 2009, when the housing market was crashing from the effects of the Great Recession.
Profit margins declined in the third quarter of 2021 as prices on flipped homes continued to rise more slowly than they did when investors originally bought their properties.
Specifically, the median price of homes flipped in the third quarter of 2021 shot up to another all-time high of $281,847. That was up 4.8 percent from $269,000 in the second quarter of 2021 and 22.5 percent from $230,000 a year earlier. The annual increase stood out as the largest for flipped properties since 2005 while the quarterly gain was the second biggest since 2015.
But the latest resale price run-ups again failed to surpass increases that investors were absorbing - 5.4 percent quarterly and 33.1 percent annually - when they bought the homes that were sold in the third quarter of this year. That gap - prices rising less on resale than on purchase - led to profit margins dropping again.
The price surges on both sides of flipping deals came as the decade-long housing-market boom in the United States continued throughout the nation during the third quarter of 2021. Prices kept spiking as a glut of buyers largely unscathed by the Coronavirus pandemic continued chasing an already tight supply of homes. Buyers have flooded the market since the pandemic hit early in 2020, drawn in large part by 30-year home-mortgage rates that dipped below 3 percent and a desire among many to escape virus-prone areas and get space for developing work-at-home lifestyles.
"Home flipping produced another round of competing trends in the third quarter of this year as more investors got in on the action but got less out of it," said Todd Teta, chief product officer at ATTOM. "It's clear that declining fortunes weren't enough to repel investors amid a typical scenario of 32 percent profits before expenses on deals that usually take an average of five months to complete. We will see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring them into the home-flipping business or start pushing them elsewhere."
Home flipping rates up in three-quarters of local markets
Home flips as a portion of all home sales increased from the second quarter of 2021 to the third quarter of 2021 in 142 of the 195 metropolitan statistical areas analyzed in the report (73 percent). While rates commonly rose by less than one percent across the country, they reached levels that generally reflected percentages seen throughout most of the past decade. (Metro areas were included if they had a population of 200,000 or more and at least 50 home flips in the third quarter of 2021.)
Among those metro areas, the largest flipping rates during the third quarter of 2021 were in Ogden, UT (flips comprised 9.5 percent of all home sales); Phoenix, AZ (9.5 percent); Salisbury, MD (9.3 percent); Salt Lake City, UT (9.3 percent) and Laredo, TX (9.2 percent).
Aside from Phoenix and Salt Lake City, the highest flipping rates during the third quarter of 2021 in 53 metro areas with a population of 1 million or more were in Memphis, TN (9 percent); Oklahoma City, OK (8.8 percent) and Austin, TX (8.5 percent).
The smallest home-flipping rates in the third quarter were in Honolulu, HI (0.8 percent); Portland, OR (2.5 percent); Rochester, NY (2.5 percent); Manchester, NH (2.7 percent) and Santa Rosa, CA (2.7 percent).
Typical home flipping returns decrease in half of markets
The median $281,847 resale price of homes flipped nationwide in the third quarter of 2021 generated a gross flipping profit of $68,847 above the median investor purchase price of $213,000. That resulted in a 32.3 percent profit margin.
Profit margins dipped from the second quarter of 2021 to the third quarter of 2021 in 92 of the 195 metro areas with enough data to analyze (47 percent).
The biggest declines came in Fargo, ND (ROI down from 196.5 percent in the second quarter of 2021 to 107.2 percent in the third quarter of 2021); Trenton, NJ (down from 117.6 percent to 45 percent); Oklahoma City, OK (down from 192.1 percent to 127.6 percent); Omaha, NE (down from 143.3 percent to 95.3 percent) and Macon, GA (down from 79.5 percent to 33.5 percent).
Markets with the largest returns on investment during the third quarter of 2021 on typical home flips were Buffalo, NY (ROI of 130.6 percent); Oklahoma City, OK (127.6 percent); Florence, NC (125.8 percent); Pittsburgh, PA (124.6 percent) and Scranton, PA (123.2 percent).
Aside from Buffalo, Oklahoma City and Pittsburgh, the largest investment returns in the third quarter among metro areas with a population of at least 1 million were in Baltimore, MD (90.6 percent) and Philadelphia, PA (88.7 percent).
Metro areas with the smallest profit margins on typical home flips in the third quarter of 2021 were Laredo, TX (7.5 percent return); Boise, ID (8 percent); Gulfport, MS (8.4 percent); Lubbock, TX (10 percent) and Portland, OR (10.1 percent).
Raw profits still highest in the West and Northeast; lowest in the Midwest and South
The highest raw profits on median-priced home flips in the third quarter of 2021, measured in dollars, were again concentrated among western and southern metro areas. Among metros with enough data to analyze, nine of the top 10 were in the West and Northeast, led by San Jose, CA (typical gross profit of $213,000); Honolulu, HI ($176,070); Fargo, ND ($166,458); Salisbury, MD ($145,000); and Baltimore, MD ($145,000).
At the opposite end of the range, 23 of the 25 lowest raw profits on typical deals were spread across the South and Midwest. The smallest were in Gulfport, MS ($14,579 profit); Laredo, TX ($15,281); Beaumont, TX ($16,850); Lubbock, TX ($17,725) and Huntington, WV-Ashland, KY ($18,400).
Home flips purchased with cash up slightly
Nationally, the portion of homes flipped in the third quarter of 2021 that had been purchased with cash by investors increased to 60.4 percent, up from 59.4 percent in the second quarter of 2021, and up from 57.7 percent in the third quarter of 2020. Meanwhile, 39.6 percent of homes flipped in the third quarter of 2021 had been bought with financing. That was down from 40.6 percent in the prior quarter, and down from 42.3 percent a year earlier.
Among metropolitan areas with a population of 1 million or more and sufficient data to analyze, those with the highest percentage of flips in the third quarter of 2021 that had been purchased with cash by investors were in Buffalo, NY (86.1 percent); Cleveland, OH (82 percent); Pittsburgh, PA (82 percent); Detroit, MI (81.9 percent) and Cincinnati, OH (80.1 percent)
Average time to flip nationwide at shortest level since 2010
Home flippers who sold properties in the third quarter of 2021 took an average of 147 days to complete the transactions, the smallest turnaround time since the third quarter of 2010. The latest number was down from an average of 148 in the second quarter of 2021 and 189 in the third quarter of 2020.
FHA buyers continue to purchase historically low portion of flipped homes
Of the 94,766 U.S. homes flipped in the third quarter of 2021, only 7.8 percent were sold to buyers using loans backed by the Federal Housing Administration (FHA), up slightly from 7.6 percent in the prior quarter but down from 13.7 percent in the third quarter of 2020. That latest figure marked the second lowest portion since the fourth quarter of 2007.
Among the 195 metro areas with a population of at least 200,000 and at least 50 home flips in the third quarter of 2021, those with the highest percentage of flipped properties sold to FHA buyers -- typically first-time home buyers -- were Hagerstown, MD (23.5 percent); Laredo, TX (22 percent); Reading, PA (20.2 percent); Allentown, PA (20 percent) and Yuma, AZ (19.7 percent).
Only 64 counties have home-flipping rate of at least 10 percent
Home flips accounted for more than 10 percent of all home sales in just 64 of the 1,123 counties around the U.S. with at least 10 home flips in the third quarter of 2021. They were led by Camden County, NC (south of Norfolk, VA) (15.9 percent); Lumpkin County, GA (north of Atlanta) (15.1 percent); Logan County, KY (outside Bowling Green) (14.7 percent); Canadian County, OK (outside Oklahoma City) (14.4 percent) and Adams County, OH (east of Cincinnati) (13.4 percent).
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