Defaults Down and Flipping Returns

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By Gino Blefari, President & CEO, Intero Real Estate Services, Inc. 

Here are two fun things to ponder this week:

Mortgage defaults are down – way down. First-time delinquent home loans fell to 0.84% of the 50.2 million mortgages in March, according to LPS.

It was monumental because it was the first month defaults fell below 1% since 2007, when the first defaults of the financial crisis reared their heads.

First-time delinquents are defined as loans that went from performing to at least 60 days delinquent when the report was created.

The days of problem loans aren’t fully behind us – there will be some amount of that in the market for a while. But the days of massive waves of these loans are safely tucked in the background, for now it seems.

Flip: Real estate’s four-letter word

Flipping made a media comeback this past week when RealtyTrac released a report highlighting the top 25 markets for flipping homes in 2012. The markets reflect those cities in which flipping produced the highest rate of return for flippers, i.e., gross profit.

Phoenix had the highest number of flips in 2012 with 10,589 property flips. Inland Empire, CA, Las Vegas, Miami, Denver and Detroit also topped the list by volume of flips.

The top five markets in terms of dollar amount profit in 2012 were San Jose ($103,241), San Diego ($85,714), San Francisco ($80,306), Las Vegas ($70,746), and Ventura County, CA ($70,426).

While flipping may conjure up bad memories of its TV glory days when everyone from waiters to hairdressers was a self-proclaimed real estate investment guru, it’s not a bad thing.

Flipping implies property improvements and increasing values – two important factors in pushing a healthy, widespread recovery.

Something tells me it’ll be less circus-like this time around. More seasoned investors and levelheaded borrowers. More lending restrictions. Less snap decisions and debt digging.

Lessons learned indeed. But it’s something to keep an eye on. If we start to see insane rampant flipping by real estate hobbyists again, we may need to step back and reboot.


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