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48 SURVEY: INVESTORS PREFER FLIPPING OVER RENTING A nationwide survey conducted by Auction. com, a leading online real estate marketplace, showed a continuation in January of a trend seen in the fourth quarter of 2014—that of investors' preference to flip houses rather than rent them out. Even as the demand for rental housing has increased in most markets, investors continue to prefer to flip houses due to a recent combination of price appreciation and decreased inventory, according to Auction.com. About 50.2 percent of investors surveyed in January said they preferred to flip the homes they purchased, while 47.5 percent said they prefer a hold-to-rent strategy (2.2 percent surveyed said they were undecided). ese percentages were little changed from Q 4. "Considering recent reports that have suggested a shortage of rental units in some metropolitan areas, we'd expect to see more investors starting to move toward a buy-and-hold strategy to address this market opportunity," Auction.com EVP Rick Sharga said. "We know anecdotally that some flippers purchase homes specifically to sell them to other investors who repurpose the properties as rental units. But it will be interesting to see if more investors move away from flipping and towards rental strategies over the next few months if demand for rental housing continues to rise." ough the survey found that more investors preferred flipping over renting overall in January, the results varied according to the investor profile and the type of auction (live versus online). Among investors making a one-time purchase, 67.5 of them preferred a hold-to-rent strategy compared to 29.1 percent who said they preferred to flip. e majority of real estate investors preferred flipping over renting (51.7 percent to 46.3 percent), while investors working on behalf of another investor also showed a propensity toward flipping over renting out the properties they purchased (60.2 percent compared to 37.6 percent). Investors who purchased their properties through live auctions appeared to show a preference toward flipping in January. Flipping was the preferred strategy over renting in all but two of the 10 states where Auction. com conducted live events during the month: Georgia and Missouri. e state with the highest percentage of investors who purchased properties at live auctions and preferred flipping was California, with 74.3 percent compared to 20 percent who said they would rent. Overall, 56.2 percent of investors who purchased properties at live auctions in January said they preferred to flip, compared to 41 percent who said they intended to rent the properties out. Meanwhile, 54.9 percent of investors surveyed in January who purchased properties through online auctions said they intended to rent, compared to 43.4 percent who said they preferred flipping. INCREASING RENT COSTS PRESENT A CHALLENGE TO ASPIRING HOMEOWNERS Fast-rising rents have made it difficult for many Americans to save up a down payment for a home purchase—and experts say that problem is unlikely to go away any time soon. Late last year, Zillow reported that renters living in the United States paid a cumulative $441 billion in rents throughout 2014, a nearly 5 percent annual increase spurred by rising numbers of renters and climbing prices. In January, the company said that its own Rent Index increased 3.3 percent year-over-year, accelerating from 2013 even as home price growth slows down. Results from a more recent survey conducted by Zillow and Pulsenomics suggest that rent prices will continue to be a problem for the aspiring homeowner for years to come. Fifty-one percent of experts said they expect rental affordability won't improve for at least another two years, Zillow reported. Another 33 percent were a little more optimistic, calling for a deceleration in rental price increases sometime in the next one to two years. Only 5 percent said they expect affordability conditions to improve for renters within the next year. Despite the challenge that rising rents present to homeownership throughout the country, more than half—52 percent of respondents—said the market should be allowed to correct the problem on its own, without government intervention. "Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work, and that has to start at the local level, not the federal level," said Zillow's chief economist, Stan Humphries. "Housing markets in general and rental dynamics in particular are uniquely local and demand local, market- driven policies. Uncle Sam can certainly do a lot, but I worry we've become too accustomed to automatically seeking federal assistance for housing issues big and small, instead of trusting markets to correct themselves and without waiting to see the impact of decisions made at a broader local level." On the topic of government involvement in housing matters: e survey also asked respondents about January's reduction in annual mortgage insurance premiums for loans backed by the Federal Housing Administration (FHA). e Obama administration has projected that the cuts will help as many as 250,000 new homeowners make their first purchase. e panelists were lukewarm on the change: While two-thirds of those with an opinion said they think the changes could be "somewhat effective in making homeownership more accessible and affordable," just less than half said the new initiatives are unwise and potentially risky to taxpayers. Finally, the survey polled panelists on their predictions for U.S. home values this year. As a whole, the group predicted values will rise 4.4 percent in 2015 to a median value of $187,040, with projections ranging from a low of 3.1 percent to a high of 5.5 percent. "During the past year, expectations for annual home value appreciation over the long run have remained flat, despite lower mortgage rates," said Terry Loebs, founder of Pulsenomics. "Regarding the near-term outlook, there is a clear consensus among the experts that the positive momentum in U.S. home prices will continue to slow this year." On average, panelists said they expect median home values will pass their precession peak ($196,400) by May 2017. There were approximately 552,000 completed foreclosures in the 12-month period from February 1, 2014 to January 31, 2015 – down from 657,000 for the 12-month period a year earlier, according to CoreLogic. KNOW THIS

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