REAL ESTATE NEWS...The housing market is suddenly hot again

by Paul R. La Monica 

Let's get the bad news out of the way first. It doesn't feel like the U.S. economy is firing on all cylinders.

Wage growth remains sluggish. The stock market continues to be volatile. Target, Macy's and many other big retailers are struggling -- and the recent spike in oil prices could further dent consumer spending.

But there is one part of the economy that is undeniably strong -- the housing market.

New home sales hit their highest level since 2008 in April. Yes, 2008. The year the housing market, Wall Street and the entire U.S. economy went to you know what in a hand basket.

And home prices hit a record high.

Big homebuilder stocks Pulte (PHM) and KB Home (KBH) both rallied on the home sales news. And they are beating the broader market this year.

Shares of home price tracker Zillow (Z) -- aka the web site you go to voyeuristically see what your neighbor's home might be worth -- are up more than 20% this year as well.

Another sign of housing strength? Home Depot (HD) and Lowe's (LOW) both reported strong earnings last week. They are bright spots in an otherwise lousy quarter for big retailers.

But retail sales may soon take a turn for the better -- thanks to the housing market rebound.

Thomas Wilson, senior investment manager at Brinker Capital, said that he expects consumers to start spending more -- partly due to the wealth effect from a rebound in housing sales and home prices.

Wilson said that the recent upbeat guidance from luxury home builder Toll Brothers (TOL) is a good sign as well.

"There is a trickle-up effect. More first-time buyers are entering the market, which makes it easier for people to sell," he said.

Wilson said that it's premature to start worrying about whether the recent housing rebound could lead to another real estate bubble like the one we had in the mid-2000s that helped lead to the subprime mortgage crisis and Great Recession.

It's worth remembering that the cause of the most recent downturn is rarely what creates the next one. The recession before the one in 2008 was largely a byproduct of a tech bubble in 2000 -- not froth in the housing market.

"Normal recessions are caused by excess somewhere in the financial system," said Eric Marshall, manager of the Hodges Small Cap fund.

That level of excess doesn't seem to exist in the housing market. In fact, some areas of the country are still struggling to recover from the depths of the 2008 downturn.

The huge pullback in oil prices exacerbated housing weakness in some markets as well. But if the recovery in the energy markets last, then home sales and prices in places like Texas, Louisiana and North Dakota could bounce back too.

Along those lines, Marshall owns Plano-based LegacyTexas Financial Group (LTXB), which he thinks has been unfairly punished due to the turmoil in the oil market.

So the rebound in housing should be a good thing for other beaten down banks.

And If the Federal Reserve raises interest rates sooner rather than later as it is now indicating it might do, that could also push some prospective homebuyers to act more quickly before mortgage rates climb too much.

In the other words, the good times for housing-related companies may not be over just yet.

REAL ESTATE TOPICS...High Rents May Force Buyers Into the Market

Author: Brian Honea

Rents have been on the rise for several months now as demand for rental housing has increased due to a short supply of homes for sale, particularly among starter homes, and high down payments. A recent survey showed that the pendulum may be swinging in the other direction, however.

According to a survey of 975 homebuyers conducted by Redfin in May among 36 states and Washington, D.C., one in four homebuyers reported that it was the high cost of rent that prompted them to go hunting for a house—a substantial increase from the share reported last summer. First time buyers drove the increase, with more than 50 percent of them citing high rents as the reason they were looking to buy a home—more than double the 25 percent reported in August.

The change is attributable to first-time buyers. In the most recent survey, more than fifty percent said high rent led them to the market, compared to only 25 percent of first-timers in August.

“Though enticed by high rents and low mortgage rates to begin a home search, first-time buyers face a number of obstacles in today’s competitive market,” said Redfin chief economist Nela Richardson. “In many cities, starter homes have seen the largest price increases because the supply of affordable homes on the market is so low and the demand for these homes is so high.”

Even so, the most common concern among homebuyers was still affordability, with one in four survey respondents naming that as the chief worry. One in five named competition as the most common concern when buying a home, an increase from one in 10 in November’s survey.

“Though enticed by high rents and low mortgage rates to begin a home search, first-time buyers face a number of obstacles in today’s competitive market.”

Nela Richardson, Redfin Chief Economist

With mortgage interest rates at historically low levels (currently under 4 percent), if homebuyers can get past the down payment obstacle, now is an excellent time to buy, according to a Zillow report late last year.

“(Rates) are currently hovering near all-time lows,” said Zillow Chief Economist Svenja Gudell. “This helps keep monthly mortgage payments low. Renters can’t take advantage of mortgage financing each month. Additionally, while home values dropped steeply during the most recent recession and remain below their pre-recession peaks in most areas, rents have been on a slow, steady, upward climb for much of the past decade. Finally, income itself—while showing signs of picking up in recent months—isn’t growing sufficiently to keep pace with growth in rents and is growing far more slowly than it was prior to the recession.”

While high rents may be causing people to search for homes, it remains to be seen how many will actually be able to purchase a home, because the down payment remains a huge obstacle. Zillow reported that consumers are spending an average of twice as much of their monthly income on rents compared with the percentage of income they are spending on mortgage payments—which makes it difficult to save for a down payment.

“There are good reasons to rent temporarily—when you move to a new city, for example—but from an affordability perspective, rents are crazy right now,” Gudell said. “If you can possibly come up with a down payment, then it’s a good time to buy a home and start putting your money toward a mortgage.”

REAL ESTATE TOPICS...IVY ZELMAN: 'There's a shortage of shelter.'

By Myles Udland

Ivy Zelman is clear: we're gonna need more housing.

A lot more.

Speaking with Barron's this week, Zelman — one of the top housing analysts around who rose to fame with a big call against homebuilders ahead of the housing crisis — said that no matter how you cut it, there are not enough places for people in America to live right now. 

Here's the key quote from Zelman (emphasis mine):

This cycle will be elongated, and the slope of the recovery is flatter than what we thought the trajectory would look like when we called the bottom in 2012. Builders have been slower to see the growth. There’s a shortage of shelter. We’re pretty indifferent whether shelter should be owned or rented. We’re just saying there isn’t enough. The U.S. is at a 30-year low of inventory available for sale. We are predicting double-digit housing-starts growth this year, next year, and in 2018.

Zelman also addresses what we've called the "next housing crisis," or a shortage of affordable housing on the low-end of the market (think single-family homes that cost around $250,000 or less).

Zelman tells Barron's that some builders have told her they are in this space and "killing it."

We're now almost a decade past the worst days of the housing crisis when it was finally realized mortgage credit had been extended to borrowers who had no chance to pay back these loans. Activity in the housing market seized up, with this most succinctly captured in the cratering number of single-family housing starts.

But Zelman's commentary makes clear that the red line in the chart below is simply going to up and to the right for a good long while.

Now when it comes to the impacts certain housing market dynamics can have on the broader economy, Zelman's agnostic view towards buying or renting has big implications.

Owners' equivalent rent holds a major weight (about 30%) in the BLS' monthly consumer price index, and if you have more people renting than buying, they are left more vulnerable to major upward increases in housing costs which may potentially push inflation higher.

Mortgages, on the other hand, tend to be fixed costs and in an ideal situation go down over time as a percent of household expenditures.

The chart above indicates there exists a bigger opportunity in single-family building — and hence an increase in the number of consumers paying a mortgage, not writing a monthly rent check — but multi-family housing is what has already been built.

This sets the scene for an inflationary event if household formations continue rising but these new households are initially pushed to rent instead of purchase shelter.

As the chart below shows, rents have been rising about 3.1% year-on-year, more than the "core" CPI measure of 2.2%.

REAL ESTATE TOPICS...Zillow, Realtor, Redfin: Which Is the Best Real Estate Website?

By John Burke

The Internet has changed the way people shop for homes. According to Statista, in 2015, online websites were the most consulted information channels for home purchases in the United States. 89% of the respondents consulted websites, and 87% consulted real estate agents. The venerable yard sign was the choice for 51% of the respondents.

Most real estate websites feature mortgage calculators, allowing shoppers to make affordability determinations. While a broker might make reckless assurances when responding to a potential buyer’s verbal inquiry during a home showing, sellers are more cautious about representations made in writing on a web page due to legal considerations.

Zillow Group

Another survey from Statista revealed that as of May 2016, Zillow Group Inc. (NASDAQ: Z) operated the most popular real estate website, with a monthly average of 36 million unique visitors and a 24.7% market share of real estate websites, as of February 2016. In February 2015, Zillow acquired Trulia. The Statista survey indicated that Trulia had approximately 23 million unique visitors per month, making it the second-most popular real estate website. As the owner of the two leading sites for online home shopping, Zillow Group reaches approximately 59 million unique visitors per month.

Zillow’s most distinctive feature is its Zestimate, which appears within the listing of each property. The Zestimate is a home valuation, explained as Zillow’s estimated market value, to be used as a starting point in determining the property’s value. Although it is not an appraisal, the Zestimate can be an effective negotiating tool for buyers. It is probably the key factor behind Zillow’s success. The Zestimate is calculated by a proprietary formula, based on public and user-submitted data.

Zillow’s page for each property includes sections for tax history and price history. Unfortunately, this information does not always appear in the spaces provided. The price history occasionally includes the price paid by the seller to purchase the home.

Realtor.com

Move Inc., a subsidiary of News Corporation (NASDAQ: NWS), operates the Realtor.com website. News Corp acquired Move in November 2014. Despite News Corp’s acquisition of Move, Realtor.com continues to function as the official website of the National Association of Realtors. Because of its extensive relationships with multiple listing services (MLS), realtor.com has approximately 97% of all MLS-listed properties.

Realtor.com offers the advantages of Move’s network of websites, geared to buyers, sellers and real estate professionals. Buyers can make moving arrangements with a click on the link for Moving.com. Sellers can access Tiger Lead, List Hub and Top Producer by selecting from the Products pop-up menu at the bottom of the Realtor.com page. This website has more features than its competitors. The option above the search bar for recently sold properties allows buyers to understand how firm the asking prices generally are in a particular locale. Other real estate websites typically do not provide this information. Realtor.com allows the user to filter the search for particular features, such as golf course views or swimming pools.

Although the Statista survey indicated that Realtor.com had an average of 18 million monthly unique visitors as of May 2016, Realtor’s parent company reported a higher flow of traffic to the site. In its May 5, 2016, earnings report for the third quarter of its fiscal 2016, News Corp boasted that Move’s internal data indicated a 25% increase of traffic to Realtor.com between April 2015 and April 2016, to 55 million monthly unique users.

Redfin

Redfin.com claims to be the originator of map-based searches for real estate listings. Its name is based on the phrase: real estate redefined. According to the Statista survey, Redfin had an average of 6 million unique users per month as of May 2016.

Redfin’s listing fee is only 1.5%, half the average fee. However, a seller must still pay a commission to the buyer’s agent. From the buyer’s perspective, Redfin usually offers more information in its property details field, compared to what is available on other real estate websites listing the same properties. Examples of this information include: whether photovoltaic power is installed, homeowner’s association fees, construction components, sewage system specifics, flood zone information and other details about the lot.

Although Redfin offers an abundance of important information, Realtor.com offers such map-based information as nearby restaurants and stores, with links to Yelp Inc. (NYSE: YELP). This is particularly useful for people moving to an unfamiliar area due to a job transfer or other change of circumstances. Realtor’s property history section appears more useful than what is offered by Zillow. Realtor also has a moving cost calculator on the right sidebar. Ease of use and its unique resources make Realtor.com arguably the best real estate website.

REAL ESTATE TOPICS...McMansion redux: Big homes are back

By AIMEE PICCHI

If there's a sweet spot in the real estate market, it may be catering to the desires of the 1 percent.

Homes 4,000 square feet or larger saw a sharp jump in sales last year, rising 30 percent from a year earlier, according to data from the U.S. Census Bureau. Meanwhile, sales of homes of fewer than 1,800 square feet barely budged from their year-earlier figures.

That's shifting the new home market in favor of bigger, more expensive homes, catering to the tastes of Americans with higher incomes. The median size of new single-families homes reached almost 2,500 square feet last year, an all-time record, Census found. Much of that growth is coming from sales of ultra-big homes, the type of showpiece properties that sell for well above the median sale price of $232,500 for existing U.S. homes.

At the same time, that's lifting the fortunes of builders such as Toll Brothers (TOL), which reported last month that their homes are now selling for an average of $855,000, or about $100,000 more than a year earlier.

While home sales are good for the economy, trouble spots are emerging, such as a lack of affordable inventory for first-time homebuyers. Millennials, the oldest of whom are in their mid-30s, may be interested in purchasing entry-level homes, but many are hobbled by student loans and rising rents, which makes it more difficult to save for a downpayment.

Given that homebuilders aren't expanding construction of smaller homes at the same rate as larger properties, there may also be less inventory to choose from.

Millennials are renting for about six years before buying a property, compared with five years for young adults in 1980, according to finance site NerdWallet. The median income for millennials over the age of 25 is slightly more than $38,000, which may put the typical new home out of their financial reach.

The median sale price for new homes reached $321,1000 in April, a nearly 10 percent jump from the median price of $292,700 a year earlier, according to the Federal Reserve Bank of St. Louis.

Millennials are now more likely to live at home with their parents than in any other type of household, Pew Research Center said last month. About one-third of Americans ages 18 to 34 are still at home with their parents, more than those who are living with a spouse or partner in their own household.

The reasons? Partially a shift in societal norms away from marriage, compounded by stagnant wages that have hurt the prospects of some demographic groups, such as Americans without college degrees.

At the same time, workers who have college educations and are already solidly middle class are enjoying improving fortunes. The share of American households who have climbed into the upper-income bracket -- defined as earning more than $125,000 for a family of three -- jumped to 20 percent in 2014 from 17 percent in 2000.

Those are the types of buyers who are most likely to snap up those 4,000 square-foot new homes. They may even fork over more to add extras, like wetbars and media rooms. Given that Toll says the average buyer is adding an additional $134,000 in options and premiums, it appears that for some buyers, bigger can get even better.

REAL ESTATE NEWS...Home price rises easing, but not in hot markets

A longstanding climb in U.S. house prices may be slowing as a handful of hot cities drive the national market while other areas are cooling off.

By Paul Davidson

The S&P/Case-Shiller national home price index, out last week, revealed that average prices rose a healthy 5.2% in March compared with a year earlier. The national price index is now just 4% off its 2006 peak after falling nearly 30% by 2012.

The welcome news, however, masks a tempering of the annual rise in the most recent two months, from 5.4% in January and 5.3% in February. While the dip may sound trivial and could be reversed, the index has followed sustained patterns the past two years. Before the recent moderation, yearly price increases widened for 11 straight months after bottoming out at 4.3% in February 2015. Previously, price appreciation topped out near 11% in late 2013, then narrowed 14 months in a row.

“Once there’s a change in direction, it’s possible” it will continue, says Ralph McLaughlin, chief economist of online real estate site Trulia. He believes home price inflation will settle into the 4% to 5% range in coming months, aiding buyers. McLaughlin attributes the downshift partly to sharp price increases that have outpaced wage gains, squeezing out low- and moderate-income first-time homebuyers. Also, he notes that U.S. job growth, while still healthy, slowed in both 2015 and the first four months of this year as the economic recovery has matured, providing less income for fledgling and move-up buyers.

Despite those headwinds, low housing inventories continue to stoke solid price increases, says David Blitzer, head of the Case-Shiller index’s committee.

Here’s a look at what’s happening in markets that are still sizzling, hot but cooling a bit and not as hot.

►Sizzling. Three Western metro areas are leading the nation, with double-digit annual price gains in March of 12.3% in Portland, 10.8% in Seattle and 10% in Denver. All are technology hubs benefiting from an influx of skilled workers, many of whom have the salaries to afford high housing costs. The past year, Portland and Seattle also have drawn San Francisco technology workers seeking relief from that city’s nosebleed home values, McLaughlin says.

In Seattle, tech companies such as Amazon are hiring briskly and the area’s geography limits new home construction, says Patti Hill, head of the Seattle King County Association of Realtors and a local broker. About two-thirds of homes for sale are ensnared in bidding wars, she estimates, and there’s just a 1.1 month supply of houses on the market compared to a healthy inventory of about six months.

The Portland area, dubbed Silicon Forest, is home to a growing cluster of makers of computer chips, electronic displays and printers, as well as sneaker giant Nike.  And with a still-affordable median price of $318,200, many units sell within a couple of days, says Jeff Wiren, a broker with ReMax Equity Group.

David Fulton, 48, has been outbid on his offers for four houses since he began hunting in October, twice by all-cash buyers. “You think you’ve found the one, and then you don’t get it,” he says.

►Hot but cooling.  San Francisco still makes the top five of Case Shiller’s 20-city index, with prices up 8.5% the past year, but that’s down from 11.1% in November. With values up 65% in the real estate recovery to a median $844,600, many middle-income buyers have been priced out.

“The market has really peaked,” says Laura Kaufman of Zephyr Real Estate. “You’ve got people who are afraid of overpaying.” That’s creating at least some opportunity for average buyers.

Dallas, which rounds out the top five at 8.5%, continues to draw both new businesses and residents with low taxes and regulation.  Average price increases, however, are below the recent 9.5% peak in December. A burst of new home construction may be playing a role, says Bill Head, spokesman for the MetroTex Association of Realtors.

►Not as hot. New construction similarly appears to have trimmed price gains to 4.3% in Charlotte, says Charlotte-based economist Mark Vitner. Chicago and New York have seen a dip to 1.9% and 2.7%, respectively, in part because of slower job growth in the northern metro areas, Blitzer says. And New York and Miami have seen lofty luxury home price increases tamed.

In Miami, a flood of foreign investment has been curbed by the strong dollar and market turbulence early in the year, says Lynda Fernandez, spokeswoman for the Miami Association of Realtors.

“I think it’s temporary,” she says.

REAL ESTATE TOPICS...CALIFORNIA Market at a glance

REAL ESTATE TOPICS...California home sales in April

Home-buying season kicks off slowly as thin housing supply constrains California home sales in April

Statewide median home price climbs, breaking $500,000 for first time in nine years

- Existing, single-family home sales totaled 406,800 in April on a seasonally adjusted annualized rate, down 2.6 percent from March and 5.4 percent from April 2015.

- April’s statewide median home price was $509,100, up 5.3 percent from March and 5.1 percent from April 2015.

- The supply of available homes on the market is operating at roughly 60 percent of normal inventory levels.

LOS ANGELES (May 16) – While sales remained above the 400,000 benchmark level, California existing home sales fell from the previous year in April as tight housing inventory continues to impede the housing market, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today. April marked the second worst start to a spring home-buying season since the housing recovery began in 2009.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 406,800 units in April, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide sales figure represents what would be the total number of homes sold during 2016 if sales maintained the April pace throughout the year.  It is adjusted to account for seasonal factors that typically influence home sales.

The April figure was down 2.6 percent from the revised 417,580 level in March and down 5.4 percent compared with home sales in April 2015 of a revised 430,030. The year-to-year decline was the first in five months and the largest sales drop since August 2014.

“The statewide median home price rising above $500,000 for the first time in nine years will undoubtedly exacerbate housing affordability for California home buyers,” said C.A.R. President Pat “Ziggy” Zicarelli. “As home prices continue their upward trend, especially in high-cost, major metropolitan regions, home buyers are looking to maximize their housing dollars by moving to even further outlying regions. For example, Bay Area buyers who were previously seeking homes in areas adjacent to San Francisco, such as Solano and Sonoma counties, now are looking even further in Sacramento, Stanislaus, and San Joaquin counties, as Bay Area adjacent counties become less affordable.”

An imbalance between supply and demand pushed the median price of an existing, single-family detached California home 5.3 percent higher in April to $509,100 from $483,280 in March. April’s median price was 5.1 percent higher than the revised $484,370 recorded in April 2015. The median sales price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling as well as a general change in values. April marked the first time in nine years that the median price has risen above the $500,000 level; it is still below the pre-recession peak of $594,530 reached in May 2007.

“Thin housing supplies were the driving force behind April’s sales drop with the most inventory constrained markets feeling the largest declines,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “In the San Francisco Bay Area, sales were down in eight of the region’s nine counties, with only Napa – which had a five-month supply of homes for sale – posting a modest 1 percent gain. As home buyers continue to move inland to find affordable housing, inventory will eventually be depleted, putting upward pressure on home prices.”

Other key points from C.A.R.’s April 2016 resale housing report include:

• C.A.R.’s Unsold Inventory Index, which indicates the number of months needed to sell the supply of homes on the market at the current sales rate, slipped to 3.5 months in April from 3.6 months in March. The index stood at 3.4 months in April 2015. The negligible year-over-year improvement was driven entirely by the reduction in home sales as listings fell even further from their 2015 levels. The long-run average home supply is 6.1 months. Even with the minimal annual increase, inventory levels are running at roughly 60 percent of normal.

• The median number of days it took to sell a single-family home fell in April to 27.7 days, compared with 29.9 days in March and 28.8 days in April 2015.

• According to C.A.R.’s sales-to-list price ratio*, tight inventories also appear to be driving final sold prices closer to listing prices, with sales prices rising to 99.3 percent of listing prices statewide in April from 98.8 percent in March.

• The average price per square foot** for an existing, single-family home statewide was $244 in April 2016, up from $227 in March and $234 in April 2015. 

• San Mateo had the highest price per square foot in April at $832/sq. ft., followed by San Francisco ($829/sq. ft.), and Santa Clara ($635/sq. ft.).  The counties with the lowest price per square foot in April include Siskiyou ($109/sq. ft.), Madera ($124/sq. ft.), Tulare ($125/sq. ft.), and Kings ($125/sq. ft.).

• Mortgage rates dipped slightly in April, with the 30-year, fixed-mortgage interest rate averaging 3.61 percent, compared with 3.69 percent in March and 3.67 percent in April 2015, according to Freddie Mac.  Adjustable-mortgage interest rates slipped, averaging 2.83 percent in April, down from 2.9 percent in March and 2.73 percent in April 2015.

REAL ESTATE NEWS...Investors shift to niche properties

Investors shift to niche properties; fewer paying all cash, C.A.R. survey finds

Location tops main reason to buy

LOS ANGELES (April 14) – More real estate investors are turning to niche properties and away from investing in single-family homes and multifamily properties than they have in recent years, according to a CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) survey of its members about their interactions with real estate investors.

C.A.R.’s 2016 California Investor Survey found 10 percent of investors purchased commercial, land, mobile homes, or other types of properties in the past year, up from 7 percent in 2015 and 6.7 percent in 2014.

Given a lack of inventory of distressed homes on the market, the share of single-family homes being purchased by investors has been declining gradually since 2013. Seventy percent of investors purchased single-family homes in 2016, down from 78 percent in 2013.

The share of investors who purchased multifamily properties also declined slightly, dipping from 21 percent in 2015 to 19 percent in 2016.

Among the reasons investors cited for buying include good location (38 percent), followed by rate of return (30 percent), good price (17 percent), and future development potential (7 percent). 

Additional findings from C.A.R.’s “2016 Investor Survey” include:

• As real estate deals become increasingly harder to find, the investment climate in California has gotten more competitive. With the listing price and final sale price nearly equal, the number of days the property was on the market has declined, and a larger share of investment properties was located outside of the urban and suburban markets they previously dominated.

• With fewer available distressed properties, the share of equity transactions has increased steadily, rising from 70 percent in 2014 to 87 percent in 2016.

• Fewer investors (62 percent) are renting out their properties in 2016, compared to last year (65 percent).

• Twenty-six percent of investors are flipping their properties, unchanged from last year, but down from 28 percent in 2014. Twelve percent plan to leave the property vacant, use it as a vacation rental, or other use.

• More than three-fourths of investors remodeled their properties, and the median cost of the remodel increased from $10,000 in 2015 to $13,500 this year.

• As a sign of optimism, the vast majority (76 percent) of REALTORS® working with investors believed the property would increase in value in one year. This also applied to the long term with 71 percent saying the property would increase in value in five years.

• Investors in 2016 are planning to hold the property for longer--an average of 8.1 years, up from 6.1 years in 2015.

• While investors own fewer properties on average in 2016 (5.6), down from 6.4 in 2015 and 8.3 in 2014, a higher proportion of them own other properties. A record share of these other properties is located outside California (15 percent in other states and 2.4 percent in other countries).

• With higher real estate prices and more investors purchasing other properties within the past year, the share of investors who obtained financing jumped sharply from 34 percent in 2015 – where it had been holding steady for the past three years – to 45 percent in 2016.

• Conversely, fewer investors paid cash in 2016 (55 percent), compared to last year (66 percent). Investors cited personal savings (46 percent) as the primary source of cash funds, followed by proceeds from a previous investment (19 percent), and private investors (19 percent).

REAL ESTATE NEWS...House flipping heats up, creating 'home price pressure cooker'

BY Diana Olick 

It looks so easy on TV. Buy a bargain-basement house, pull up some nasty carpet, re-tile the bathroom, paint away the wall stains and sell it for a hefty profit.

It's not, however, all those popular shows that are driving the flipping market today. It's pure and simple prices — and profit. There is a severe lack of good quality, turn-key homes for sale, and that has created a seller's market across the nation, even for those reselling homes.

After cooling off in 2014, home flipping is on the rise again — its share of all home sales is up 20 percent in the first three months of this year from the previous quarter and up 3 percent from the same period a year ago, according to a new report from RealtyTrac, which defines a flip as a property bought and resold within a 12-month period.

While flipping today is nothing like it was during the housing boom a decade ago, when investors used risky mortgages, it is reaching new peaks in 7 percent of the nation's metro markets, including Baltimore, Buffalo, New Orleans, San Diego and even pricey Seattle.

"While responsible home flipping is helpful for a housing market, excessive and irresponsible flipping activity can contribute to a home price pressure cooker that overheats a housing market, and we are starting to see evidence of that pressure cooker environment in a handful of markets," said Daren Blomquist, senior vice president at RealtyTrac.

That's because flippers today largely use cash — 71 percent did in the first quarter of this year. Compare that to just 27 percent who used cash at the height of the housing boom. That helps keep most flippers conservative, but it also exacerbates the problems for entry-level homebuyers, who are facing one of the tightest housing markets in history. They simply can't compete against all-cash buyers.

Usually flippers look for distressed properties either in the foreclosure process or already bank-owned. These are not always listed on public sale sites. There are fewer of those today, so flippers are moving to the mainstream market, creating that new pressure.

"A telltale sign is when flippers are acquiring properties at or close to full market value. Those markets are so competitive that even the off-market properties flippers are looking to buy are not selling at much of a discount — and there may be very few distressed properties available," said Blomquist.

Examples of these markets include San Antonio, where Blomquist says flippers are actually purchasing at a 7.8 percent premium above estimated full market value, as well as Austin, Texas; Salt Lake City; Naples, Florida; Dallas and San Jose, California.

Despite the premium to buy, flippers are still seeing growing gains in profit. Home flippers realized an average gross profit of more than $58,000 in the first quarter of this year, the highest since the third quarter of 2005, according to RealtyTrac.

Real estate agent Dana Rice and her husband flip houses in the tony D.C. suburb of Bethesda, Maryland. Prices there are well above the national median, and there are few distressed properties. Instead, they target old, small fixer-uppers. Even those command a hefty purchase price up front, but they can also offer big rewards.

"I didn't want a teardown. There is so much character in this part of Bethesda," said Rice. "I don't think that everybody wants a brand new build. There is a hole in the market because not everyone wants to do a renovation. If you put a little bit of effort in, these numbers can be huge."

Rice purchased her latest project, a very small colonial, within walking distance to shops and Metro, for $680,000. She expects to put half a million dollars into the renovation, adding both square footage and high-end finishings; she is confident that in this competitive market she will see an 18-25 percent return on investment.

"It's like birthing a baby," she said, noting that she will wait to list it until she feels the market is just right. "If you're overpriced, you're dead in the water."

The lack of inventory is certainly a double-edged sword for flippers. Their initial investment price can be high, and flippers are often competing against local builders, who may want to tear the house down and put something up that is twice the size. On the other hand, not everyone wants or can afford a huge, new, expensive home, and that gives flippers the edge.

"The key here is that there is particularly a dearth of listed inventory in good condition," said Blomquist. "That is the inventory flippers are competing against when they sell."