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Food for thought on House Flipping - AND rates are UP again

June 2nd, 2009 9:33 AM

Yesterday we received some new lending guidelines related to "property flipping." The guideline changes were structured in a way to make it easier to sell flipped houses - a big change from the last time we saw flipping during the housing boom.

Here are some things we know:

The last time we saw a boom in housing flipping, banks tightened their lending guidelines, restricting the timeline investors had to hold houses in order for buyers to get the best financing for their purchases.
People who lose their homes to foreclosure frequently "gut" their houses prior to vacating. Sometimes this is out of anger and is mostly destructive type of gutting. Sometimes this is for money and involves pulling out appliances, fixtures, etc, for resale.
Banks are reluctant to spend to refurbish gutted houses.
Investors have historically purchased gutted houses to refurbish as inexpensively as possible, to flip at a huge profit.
Investors are again purchasing "distress sales" and foreclosed homes. In fact, banks often have special arrangements with investors and pay them to purchase these homes, or to find buyers for these homes.
Banks are releasing foreclosed homes on the market slowly. Does this indicate that they are reluctant to further glut the market? or does it say that they will NOT sell these houses at huge discounts, so are waiting until values rise before releasing this inventory?

IF lenders are now making it easier to finance these homes, what will this mean in terms of housing values?

The lending guidelines that have been loosened are FHA loans. Please feel free to draw your own conclusions.

Other news this morning:

Pending house sales are UP for the 3rd straight month, and up much more than was anticipated.
The stock market staged a huge rally yesterday (up 200+ points for the DOW, and breaking through a 200 day moving average. Analysts are very mixed regarding whether or not we will see the stock market continue to move up, or whether or not it will sell off again. Trading today is pretty flat.
We are noticing a bit of an inflationary trend now - precious metals are way up, oil is way up to prices we haven't seen for almost a year (currently at $68.18/barrel - off a bit from the highs earlier this morning.)
Lending guidelines, in most cases, continue to tighten. As an example, best rates for FHA financing are now available for those with credit scores of 720!. Prior to this week, best rates were available with credit scores as low as 660. Now, if your score is between 620-660, you will pay a higher rate.
News yesterday was all positive for the economy (average wages up 50 cents/hour, manufacturing purchases UP, construction spending UP), but bad for bonds and mortgage rates.
The 10 year bond yield is up again, at almost 3.70% yield, and mortgage rates are being allowed to float with the bonds - so MORTGAGE RATES ARE UP AT 5%+ AGAIN THIS MORNING.

There were some pretty dramatic thunder storms yesterday, which cooled us off a bit. We are expecting hot and humid today, but are looking for a cooling trend towards the end of the week.

Make it a great day today - and as always, call or email anytime if you have questions or concerns. I will get back to you as quickly as possible.

Best regards,

Shelby Bateson

Town & Country Mortgage

503-819-6545 phone

Lic # ML-3604

* Best rates apply to borrowers with Loan to Value at or below 90% and credit scores of 740+. ** Best FHA rates apply to credit scores of 660 and up. There are upward rate adjustments for lower credit scores on all loan programs. All rates are subject to change without notice. These rates are NOT APRs - do not include closing costs.

Posted by Shelby Bateson on June 2nd, 2009 9:33 AMPost a Comment (0)