Home flipping is on the rise again according to a new report, with home flipping increasing in 75 percent of U.S. markets.
The Year-End and Q4 2015 U.S. Home Flipping report reveals that 179,778 single family homes and condos were flipped in 2015, accounting for 5.5 percent of sales last year, compared to 5.3 percent in 2014. This marks the first increase in the share of homes flips in the last four years.
“Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and resold by the flipper at a five percent premium above estimated market value,” said Daren Blomquist, senior vice president at RealtyTrac.
“Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008.
“More inexperienced home flippers with a smaller financial cushion could be a sign of an over-speculative market, but the data indicates that flippers in 2015 continued to operate within relatively conservative margins,” Blomquist added.
According to the report, last year saw approximately 110,008 investors or entities complete at least one home flip, the highest number of home flippers since 2007, which was 130,603 home flippers.
The states with the highest share of flips in 2015 included Nevada: 8.8 percent; Florida: 8.0 percent; Alabama: 7.4 percent; Arizona: 7.1 percent; and Tennessee: 6.9 percent.
The highest average gross flipping profit in 2015 — among 110 metro areas with at least 250 flips — were San Francisco: $145,000; San Jose: $145,000; Los Angeles: $115,000; Oxnard-Thousand Oaks-Ventura, California: $110,000; and New York: $120,000.
In terms of return on investment, the markets with highest average gross ROI in 2015 were Pittsburgh: 129.5 percent; New Orleans: 99.2 percent; Philadelphia: 98.4 percent; Cincinnati: 89.7 percent; and new Haven, Connecticut: 89.6 percent.
The Warning Signs
While the percentage of homes flipped in 2015 was well below that of 2005, which hit 8.2 percent, there’s still reason for concern.
According to the report, the share of home flips for 12 of the 110 metro areas was above 2005 levels, just two years before the U.S mortgage market started to collapse. This includes: Pittsburg (19 percent above 2005 levels), Memphis (18 percent above 2005 levels); Buffalo, New York (12 percent above 2005 levels); San Diego (four percent above 2005 levels); Seattle (four percent above 2005 levels); Birmingham, Alabama (four percent above 2005 levels); and cleveland (three percent above 2005 levels).
“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Chief Economist at Windermere Real Estate, Matthew Gardner.
“The problem with a rise in home flipping is that these sales artificially inflate home prices, making housing even less affordable for buyers and increasing the risk of a bubble. I’m happy to see that the percentage of home flipping sales in Seattle does not exceed the national average and that they’re down from a year ago. This makes sense given our affordability constraints and lower potential for profits for home flippers.”
Florida continues to be a hotbed for house flipping. The Miami metro area recorded the most homes flipped nationwide in 2015 with 10,658. The biggest year-over-year increase in home flips were Lakeland, Florida (up 50 percent); New Haven, Connecticut (up 45 percent); Jacksonville, Florida (up 41 percent); Homosassa Springs, Florida (up 40 percent); and Akron, Ohio (up 37 percent).
“We continue to see distressed properties funnel through the pipeline in South Florida, which makes it ripe for investors to profit in a strong selling market,” said Mike Pappas, CEO and president at the Keyes Company.