Industry Data

U.S. Home Sale Profits Remain High

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…But Take Unusual Fall In Second Quarter ATTOM, curator of the nation’s premier property database, released its second-quarter 2021 U.S. Home Sales Report, which shows that profit margins for home sellers took an unusualdip in the second quarter but still were far above where were they were a year earlier. In a sign that the housing market remained super-heated but that investment returns may be declining, the report reveals that the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and from $60,572 in the second quarter of 2020. However, the profit margin on the median-priced house or condominium—he return on investment that sellers made on their original purchase price—declined from 48.4% in the first quarter of this year to 44.9% in the second quarter. While the latest margin remained 13 points above the 32% level recorded a year earlier, the drop-off marked a rare decline during a time of year that usually produces some of the best returns for sellers. The last time typical returns on investment dropped nationally during any second-quarter period was in 2008. The mixed picture of high, but reduced, profit margins came as the national median home price hit yet another record in the second quarter of 2021, reaching $305,000. That was up 11% from $275,200 in the first quarter of 2021 and 22% from $250,000 in the second quarter of 2020. The annual price surge marked the largest since at least 2006 and was two to four times greater than increases seen just a year ago. Still, profits dropped in the second quarter of this year because price gains—high as they were—were smaller than increases that recent sellers had been paying when they originally bought their homes. The gap between the latest price gains and earlier increases caused the dip in profit margins. While home prices rose from the first to the second quarter of 2021 in 98% of U.S. metropolitan areas with enough data to analyze, investment returns rose in only 56%. The recent price and profit trends reflect a housing market that has continued its decade-long upward spiral, even as the Coronavirus pandemic has damaged significant sectors of the U.S. economy since it hit early last year. Amid rock-bottom interest rates and worries about living in congested virus-prone parts of the country, a glut of buyers have been chasing a tight supply of homes for sale, raising demand and spiking prices. “Prices and profits from the second quarter painted yet another picture of a housing market in high gear—except for one thing. Profit margins dropped in the second quarter, which is very unusual for any Springtime period because that’s when the housing market is usually hottest or close to it,” said Todd Teta, chief product officer at ATTOM. “While it may just be a momentary thing in today’s volatile market, it’s definitely something to keep an eye on in case it’s a sign that the market is finally cooling or giving in to some of the economic forces connected to the virus pandemic.” Other Takeaways Profit margins rose annually in more than 80% of metro areas around the U.S. and quarterly in slightly more than half Western metros continued to have highest profit margins; southern metros have smallest Prices up in almost every metro area Homeownership tenure fell to 8-year low Institutional investment shot up to nearly a 6-year high Cash sales up to six-year high FHA-financed purchases at nearly 14-year low

May Foreclosure Starts Up 36 Percent Year-Over-Year

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ATTOM, licensor of the nation’s most comprehensive foreclosure data released its May 2021 U.S. Foreclosure Market Report, which shows there were a total of 10,821 U.S. properties with foreclosure filings— default notices, scheduled auctions or bank repossessions—down 8 percent from a month ago but up 23 percent from a year ago. Foreclosure starts, which represent the initial notice of default, grew by 36 percent year-over-year. “While the increase in foreclosure activity is significant, it’s important to keep these numbers in perspective,” said RealtyTrac Executive Vice President Rick Sharga. “Last year’s numbers were extraordinarily low due to the implementation of the foreclosure moratorium and the CARES Act mortgage forbearance program, so the year-over-year numbers look a lot more dramatic than they are. And May foreclosure activity actually declined compared to April.” The ATTOM May 2021 U.S. Foreclosure Market Report shows that nationwide one in every 12,700 housing units had a foreclosure filing. States with the highest foreclosure rates in May 2021 were Nevada (one in every 5,535 housing units with a foreclosure filing); Delaware (one in every 5,854 housing units); Illinois (one in every 5,903 housing units); Florida (one in every 7,207 housing units); and New Jersey (one in every 7,679 housing units). Among the 220 metro areas with a population of at least 200,000, those with the highest foreclosure rates in May 2021 were Champaign, IL (one in every 2,420 housing units with a foreclosure filing); Peoria, IL (one in every 3,030 housing units); Cleveland, OH (one in every 3,715 housing units); Bakersfield, CA (one in every 3,774 housing units); and Mobile, AL (one in every 4,174 housing units). Additionally, lenders started the foreclosure process on 5,909 U.S. properties in May 2021, down 7 percent from last month and up 36 percent from a year ago. Counter to the national trend, states that had at least 100 foreclosure starts in May 2021 and saw the greatest monthly increase in foreclosure starts included: Ohio (up 96 percent); Alabama (up 78 percent); Michigan (up 65 percent); Georgia (up 61 percent); and Virginia (up 50 percent).

Home Flipping Rate and Gross Profits Decline Across U.S. in First Quarter of 2021

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Home Flipping Rate Falls in First Quarter to Lowest Level Since 2000 Prices on Flipped Homes Drop, Leading to Smallest Profit Margin in 10 Years ATTOM, curator of the nation’s premier property database, released its first-quarter 2021 U.S. Home Flipping Report showing that 32,526 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented only 2.7 percent of all home sales in the first quarter of 2021, or one in 37 transactions—the lowest level since 2000. The latest figure was down from 4.8 percent, or one in every 21 home sales in the nation during the fourth quarter of 2020 and from 7.5 percent, or one in 13 sales, in the first quarter of last year. The quarterly and yearly drops in the flipping rate marked the largest decreases since at least 2000. As the flipping rate dropped, both profits and profit margins also declined. The gross profit on the typical home flip nationwide (the difference between the median sales price and the median price paid by investors) declined in the first quarter of 2021 to $63,500. That amount was down from $71,000 in the fourth quarter of 2020, although still up slightly from $62,000 in the first quarter of last year. The slide pushed profit margin returns down, with the typical gross flipping profit of $63,500 in the first quarter of 2021 translating into a 37.8 percent return on investment compared to the original acquisition price. The gross flipping ROI was down from 41.8 percent in the fourth quarter of 2020, and from 38.8 percent a year earlier, to its lowest point since the second quarter of 2011 when the housing market was still mired in the aftereffects of the Great Recession in the late 2000s. Profits and profit margins went down in the first quarter as median prices on flipped homes decreased quarterly for the first time in two years. Homes flipped in the first quarter of 2021 were sold for a median price of $231,500, down 3.9 percent from $241,000 in the fourth quarter of 2020. That marked the first quarterly decrease in typical resale prices since the fourth quarter of 2018 and the largest quarterly decline since the first quarter 2011. The first quarter-of-2021 median, however, was still up from $222,000 in the first quarter of last year. Home flipping and profit margins dropped in the first quarter of 2021 amid an ongoing housing boom that spiked housing prices but created conditions less favorable for investors. Median values of single-family houses and condominiums shot up more than 10 percent across most of the nation last year as a rush of house hunters jumped into the market, chasing an already-tight supply of homes squeezed further by the Coronavirus pandemic that hit early in 2020. The glut of buyers came as mortgage rates dipped below 3 percent and many households sought houses as a way to escape virus-prone areas and gain space for developing work-at-home lifestyles. That price run-up also raised the possibility that home values during the housing boom, now in its 10th year, had increased to the point where they could flatten out during the roughly six-month period most investors need to renovate and flip homes. Two Perspectives “It’s too early to say for sure whether home flippers indeed have gone into an extended holding pattern. But the first quarter of 2021 certainly marked a notable downturn for the flipping industry, with the big drop in activity suggesting that investors may be worried that prices have simply gone up too high,” said Todd Teta, chief product officer at ATTOM. “After riding the housing boom along with others for years, they now might be having second thoughts. Whether this is the leading edge of a broader market downturn is little more than speculation. But ATTOM will be following all market measures very closely over the coming months to find out.” William Tessar, president of CIVIC Financial Services, offered this perspective: “Today’s report from ATTOM reflects an interesting shift occurring in the real estate investment space. With the recent runup in home prices, fewer first-time investors are able to enter the fix-and-flip arena. That doesn’t mean the fix and flip market is gone; in fact we’re experiencing record volumes with experienced investors continuing to do high-end flips. In addition, themarket for single-family rentals is off the charts, especially as more first-time buyers get priced out of the market and plan on longer-term rental strategies. Therefore fix-and-hold is a very lucrative space for real estate investors.” Home flipping rates down in 70 percent of local markets Home flips as a portion of all home sales decreased from the fourth quarter of 2020 to the first quarter of 2021 in 76 of the 108 metropolitan statistical areas analyzed in the report (70.4 percent). The rate commonly dropped from about 5 percent to 3 percent. (Metro areas were included if they had at a population of 200,000 or more and at least 50 home flips in the first quarter of 2021.) Among those metro areas, the largest quarterly decreases in the home flipping rate came in Memphis, TN (rate down 80 percent); Lakeland, FL (down 75 percent); San Francisco,CA (down 74 percent); Columbia, SC (down 73 percent) and Palm Bay, FL (down 73 percent). Aside from Memphis and San Francisco, the biggest quarterly flipping-rate decreases in 51 metro areas with a population of 1 million or more were in Dallas, TX (rate down 72 percent); Orlando, FL (down 71 percent) and Tampa, FL (down 69 percent). The biggest increases in home-flipping rates were in Springfield, MA (rate up 114 percent); Albuquerque, NM (up 103 percent); Springfield, IL (up 95 percent); South Bend, IN (up 86 percent) and Boston, MA (up 79 percent). ATTOM provides premium property data to power products that improve transparency, innovation, efficiency and disruption in a data-driven economy. ATTOM multi-sources property tax, deed, mortgage, foreclosure, environmental risk, natural hazard, and neighborhood data for more than 155 million U.S. residential and

Median Prices Increase Annually During First Quarter of 2021 in 75 Percent of Opportunity Zones

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Median Values Again Rise At Least 10 Percent in Almost Two-Thirds of Zones ATTOM Data Solutions, curator of the nation’s premier property database, released its first-quarter 2021 special report analyzing qualified low-income Opportunity Zones established by Congress in the Tax Cuts and Jobs Act of 2017. In this report, ATTOM looked at 4,579 zones around the United States with sufficient sales data to analyze, meaning they had at least five home sales in the first quarter of 2021. The report found that median home prices increased from the first quarter of 2020 to thefirst quarter of 2021 in 75 percent of Opportunity Zones with sufficient data to analyze and rose by at least 10 percent in close to two-thirds of them. Those percentages roughly tracked trends in areas of the U.S. outside of Opportunity Zones, continuing patterns from the fourth quarter of last year. Prices in Opportunity Zones continued to lag far behind the national average in the first quarter of 2021. About 43 percent of zones with enough data still had median prices of less than $150,000. But that was down from 50 percent a year earlier as prices inside some of the nation’s poorest communities kept surging ahead with the broader market, even as the 2020 Coronavirus pandemic caused major disruptions in the broader U.S. economy. The pandemic’s impact continued, in the early months of 2021, to hit hardest in lower-income communities that comprise most of the zones targeted for tax breaks designed to spur economic redevelopment. But housing markets inside Opportunity Zones showed no major signs of cooling off as prices there again rode along with a nationwide boom now in its 10th year. Opportunity Zones are defined in the Tax Act legislation as census tracts in or along side low-income neighborhoods that meet various criteria for redevelopment in all 50 states, the District of Columbia and U.S. territories. Census tracts, as defined by the U.S. Census Bureau, cover areas with 1,200 to 8,000 residents, with an average of about 4,000 people. “Some of the country’s poorest neighborhoods continued riding the long national boom in home prices during the first quarter of the year, reaping increases that pretty much matched those in more-affluent areas. Those ongoing gains emerged in the latest price data showing values in designated Opportunity Zones rising at about the same pace, or even more, than in other communities,” said Todd Teta, chief product officer with ATTOM Data Solutions. “Home values inside the zones remain quite low compared to the rest of the U.S. But they are far from immune from the boom. That shows continued interest among home buyers in marginal areas and continues to bode well for the redevelopment that Opportunity Zone tax breaks are designed to promote.” High-level findings from the report include: Median prices of single-family houses and condominiums rose from the first quarter of 2020 to the first quarter of 2021 in 2,771 (75 percent) of Opportunity Zones with sufficient data to analyze and increased in 1,987 (54 percent) of the zones from the fourth quarter of last year to the first quarter of this year. By comparison, median prices rose annually in 78 percent of census tracts outside of Opportunity Zones and quarterly in 55 percent of them. (Of the 4,579 Opportunity Zones included in the report, 3,687 had enough data to generate usable median prices in the first quarters of both 2020 and 2021; 3,692 had enough data to make comparisons between the fourth quarter of 2020 and the first quarter of 2021). Measured year over year, median home prices rose at least 10 percent in the first quarter of 2021 in 2,249 (61 percent) of Opportunity Zones with sufficient data to analyze. Prices also rose that much during that time period in 58 percent of other census tracts throughout the country with sufficient data. Opportunity Zones did even better when comparing areas where prices rose at least 25 percent from the first quarter of 2020 to the first quarter of 2021. Measured year over year, median home prices rose by that level in 1,379 (37 percent) of Opportunity Zones but in only 28 percent of census tracts elsewhere in the country. States with the largest percentage of Opportunity Zones where median prices rose, year over year, during the first quarter of 2021 included Arizona (median prices up, year over year, in 84 percent of zones), Idaho (83 percent), Oregon (83 percent), Nevada (82 percent) and Michigan (82 percent). Of all 4,579 zones in the report, 1,964 (43 percent) had a median price in the first quarter of 2021 that was less than $150,000 and 786 (17 percent) had medians ranging from $150,000 to $199,999. The total percentage of zones with typical values below $200,000 was down from 67 percent in the first quarter of 2020 to 60 percent in the first quarter of 2021. Median values in the first quarter of 2021 ranged from $200,000 to $299,999 in 956 Opportunity Zones (21 percent) while they were at least $300,000 or more in 873 (19 percent). The Midwest continued in the first quarter of 2021 to have the highest portion of Opportunity Zone tracts with a median home price of less than $150,000 (68 percent), followed by the South (51 percent), the Northeast (43 percent) and the West (8 percent). Median household incomes in 87 percent of Opportunity Zones were less than the medians in the counties where they were located. Median incomes were less than three-quarters of county-level figures in 54 percent of zones and were less than half in 14 percent.

U.S. Foreclosure Activity Continues to Increase Despite Government Moratorium

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Number of Homes Flipped by Investors Decreases for First Time Since 2014 ATTOM Data Solutions, licensor of the nation’s most comprehensive foreclosure data and parent company to RealtyTrac (realtytrac.com), released its Q1 2021 U.S. Foreclosure Market Report, which shows there were a total of 33,699 U.S. properties with foreclosure filings—default notices, scheduled auctions or bank repossessions—during the first quarter of 2021, up 9% from the previous quarter but down 78% from a year ago. The report also shows a total of 11,880 U.S. properties with foreclosure filings in March 2021, up 5% from the previous month but down 75% from March 2020—the second consecutive month with month-over-month increases in U.S. foreclosure activity. “The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. “But mortgage servicers have been able to begin foreclosure actions on vacant and abandoned properties, which benefits neighborhoods and communities. It’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.” Highest foreclosure rates in Delaware, Illinois, and Florida Nationwide one in every 4,078 housing units had a foreclosure filing in Q1 2021. States with the highest foreclosure rates were Delaware (one in every 1,705 housing units with a foreclosure filing); Illinois (one in every 2,175 housing units); Florida (one in every 2,237 housing units); Indiana (one in every 2,397 housing units); and Ohio (one in every 2,500 housing units). Among 220 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in Q1 2021 were Lake Havasu City, Arizona (one in every 518 housing units); Provo, Utah (one in 1,280); McAllen, Texas (one in 1,297); Shreveport, Louisiana (one in 1,353); and Atlantic City, New Jersey (one in 1,441). Other major metros with a population of at least 1 million and foreclosure rates in the top 50 highest nationwide, included Cleveland, Ohio at No.6; Birmingham, Alabama at No. 9; Jacksonville, Florida at No. 12; Miami, Florida at No. 34; and Riverside, California at No. 39. Foreclosure starts increase 3% from last quarter Lenders started the foreclosure process on 17,652 U.S. properties in Q1 2021, up 3% from the previous quarter but down 78% from a year ago. Those states that saw the greatest quarterly increase in foreclosure starts and had 500 or more foreclosure starts in Q1 2021, included California (up 36%); Ohio (up 25%); North Carolina (up 15%); Virginia (up 11%); and South Carolina (up 10%). Bank repossessions increase 14% from last quarter Lenders repossessed 7,320 U.S. properties through foreclosure (REO) in Q1 2021, up 14% from the previous quarter but down 87% from a year ago. Those states that had the greatest number of REOs in Q1 2021 were Florida (945 REOs); Illinois (610 REOs); California (414 REOs); Texas (370 REOs); and Arizona (330 REOs). Average foreclosure timeline increases 8% in first quarter 2021 Properties foreclosed in the first quarter of 2021 had been in the foreclosure process an average of 930 days, up 8% from an average 857 days for properties foreclosed in the fourth quarter of 2020 and up 38% from an average of 673 days for properties foreclosed in the first quarter of 2020. “The government’s foreclosure moratorium, and the CARES Act mortgage forbearance program have extended foreclosure timelines for owner-occupied homes by a full year,” Sharga noted. “Hopefully, this extra time will give financially-distressed homeowners the chance to get back on their feet, and work with their lenders to avoid a foreclosure when the government programs expire.” States with the longest average foreclosure timelines for properties foreclosed in Q1 2021 were Arizona (1,939 days); New Jersey (1,764 days); New York (1,691 days); Pennsylvania (1,654 days); and Hawaii (1,650 days). States with the shortest average times to foreclose in Q1 2021 were West Virginia (48 days); Montana (76 days); Nebraska (112 days); Mississippi (132 days); and Missouri (189 days).

Single-Family Rentals Have More Runway Ahead

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Institutional Investors Reconsider the ‘Get Out’ Portion of Their Initial ‘Get In, Get Out’ Purchase Strategy by Steven Katz These days, it is rare to pick up any real estate publication and not see a single-family rental (SFR) headline near the top of the page. Industry attention and institutional participation are seemingly growing by the minute. Naturally, where there are advocates, there are also devil’s advocates, and they have raised the question as to whether the SFR space is already getting crowded. It may be true that the sector is no longer in its infancy, but if that is the case, it has only matured into its adolescence. SFR is in the middle of a rapid transformation, and it likely has several years of evolution before approaching anything resembling an equilibrium. Thanks to the sector’s still-low prevalence of professional management, efficiency-delivering tech adoption and supportive demographic drivers, there is little doubt that SFR has the solid fundamentals to sustain its momentum. From Crisis to Creation As the story goes, the professionally managed SFR sector as we know it today is a byproduct of the Great Recession and the inexorably linked Housing Crisis. Institutional capital opportunistically picked up undervalued single-family homes, adopted a rental strategy and waited for prices to recover for a profitable exit. However, over those initial few years, rental housing management was still in the nascent stages of determining the best ways to operate SFR communities. Since then, the adoption of new technologies has streamlined operations and simplified the landlord-customer relationship. The implementation of self-showing technology, digital lockboxes and online rental screening tools have all allowed for a quicker, more seamless leasing process. Time is money in this industry, and the efficient matching of potential renters with their ideal units meaningfully cuts down on implicit vacancy costs. Once a home is leased, renters now have access to mobile apps that streamline the process for maintenance requests, allowing landlords to monitor the property and get ahead of potential issues. A 2017 study of apartment tenants by Buildium found that 53% of renters prefer to be contacted via email with important updates from their landlord, while 47% of renters want the ability to file and track maintenance requests electronically. This shift in renter preferences has likely leapt even further during the pandemic as the ability to conduct business remotely became paramount. Lastly, the integration of smart home technologies, especially in HVAC systems, reduces excess energy usage and allows for both greener pockets and environments. Collectively, these new developments have freed up time and resources for managers and tenants alike, all while improving product quality and the user experience. The sheer volume of new innovative technologies introduced into SFR over the past decade is immense. Taking all of the small incremental cost savings together has proven to be a game changer for the industry — it is a main reason why institutional investors have reconsidered the ‘get out’ portion of their initial ‘get in, get out’ purchase strategy. Demographic Sweet Spot Inarguably, the single-family rental tenant profile is one of the sector’s most attractive aspects. On average, SFR tenants stay in their homes longer than in any other type of rental housing. According to our research partner, Chandan Economics, 76.0% of SFR tenants remain in their units for more than one year, with the share falling to 74.0% in two- to four-family homes and 69.9% in multifamily properties (Chart 1). Moreover, SFR leads the pack in the percentage of tenants who stay for five years or more. A sizable 35.6% of SFR households are five-year-plus residents, with the total edging down to 32.4% and 27.6% for two- to four-family and multifamily, respectively. These data are in line with what we all already know to be true: once there are kids in the home, moving becomes a more arduous process. For reference, single-family rental properties are 37% more likely to have children in the household than all other rental types. Between renters’ penchant for remaining in their homes for longer and the fierce competition to get into available units, it should come as no surprise that vacancy rates in SFR properties have historically sat 2.6% lower than all other asset types. For landlords, these lower vacancy rates translate to less time without cashflow generation. Certainly, these trends speak to SFR’s in-place value proposition, but how are forward-looking trends likely to shape future demand? The pandemic has accelerated domestic migration, and the SFR market is positioned to be a primary beneficiary. Chandan Economics notes that, generally, states that have enjoyed higher levels of population growth over the past year tended to have higher shares of SFR as a percent of total rentals (Chart 2). Within the 10 states posting the highest population growth in 2020, SFR made up an average of 45.0% of all rental households (Chart 3). The share rises to 46.2% for the next 10 by population growth but falls thereafter. A Whole Lot of Runway Despite attracting both investor and media attention, the SFR market is still largely owned by smaller investors. According to a Chandan Economics analysis of the Census Bureau’s 2018 Rental Housing Finance Survey, the share of SFR owned and operated by institutional managers was just 2.3% in that year, while multifamily’s share was 8.3% (Chart 4). The splits are even more disproportionate when it comes to the share of units owned and operated by individual investors. The ‘mom and pop’ contingent accounted for 72.5% of SFR units and just 11.9% of multifamily units. The trifecta of LLP, LP and LLC investors, a group that makes up a dynamic middle ground between large and small investors, accounts for 57.7% of multifamily control and just 15.7% within SFR. While these data seem to reflect two separate rental housing universes, as the SFR sector continues to scale up, attract institutional investment and bring on professional managers that offer innovative technologies, institutional SFR is looking more like institutional multifamily day by day. It is only natural that their ownership