While house flipping cooled down in 2014, it’s back with a vengeance in 2016.
RealtyTrac’s Q1 2016 U.S. Home Flipping Report reveals home flipping increased 20 percent from the previous quarter, up three percent from a year ago. The report shows that 6.6 percent of all single-family home and condo sales (43,740) were flips during the first quarter of 2016.
“After faltering in late 2014, home flipping has been gaining steam for the last year and a half thanks to falling interest rates and a dearth of housing inventory for flippers to compete against,” said Daren Blomquist, senior vice president at RealtyTrac.
Last year saw housing flipping increase 75 percent as 179,778 single family homes and condos were flipped in 2015, accounting for 5.5 percent of sales last year. It marked the first increase in the share of homes flipped for the past four year.
Nationally, house flipping isn’t far above its historic norm, and the majority of home flippers today are using cash to purchase properties. The first quarter of 2016 saw 71 percent of house flippers use cash, compared to just 37 percent at the height of the housing boom. According to Blomquist, most markets appear to be behaving rationally and responsibly.
“While responsible home flipping is helpful for a housing market, excessive and irresponsible flipping activity can contribute to a home price pressure cooker that overheats a housing market, and we are starting to see evidence of that pressure cooker environment in a handful of markets,” said Blomquist.
“A telltale sign is when flippers are acquiring properties at or close to full market value. Those markets are so competitive that even the off-market properties flippers are looking to buy are not selling at much of a discount — and there may be very few distressed properties available.
“Spending their own money rather than other people’s money is keeping flippers conservative.”
Home flipping increased seven percent (new all-time highs in Q1 2016) in nine of the 126 metropolitan statistical areas surveyed, which include Baltimore, Maryland; Buffalo, New York; Huntsville, Alabama; New Orleans, Louisiana and York-Hanover, Pennsylvania.
“It’s somewhat surprising to see flipping is on the rise in the Seattle area given our rapidly rising home prices,” said Chief Economist at Windermere Real Estate, Matthew Gardner.
“My hope is that this is a temporary byproduct of having far more buyers than available inventory, as an increase in home flipping numbers can artificially inflate prices and makes homes even less affordable for buyers. Thankfully we are starting to see modest increases in the number of homes for sale in Seattle, which should cause a slowdown in price growth as we head into 2017.”
House Flipping Markets
House flipping as a share of total sales increase from a year ago in 60 percent of the metropolitan areas analyzed in the report — 75 out of 126 market. The markets with the biggest increase — with a population of at least one million — were: New Orleans (up 45 percent), San Antonio (up 34 percent), Nashville (up 26 percent), Cleveland (up 26 percent), Columbus, Ohio (up 23 percent), and Dallas (up 22 percent).
“As available listing inventory has remained low across Ohio, rising residential home prices and strong buyer demand are fueling a resurgence of small investors entering the market to rehab and flip residential homes,” said Michael Maho, president at HER realtors. “While in recent years, large institutional investors had been leading the way in purchase of mortgage notes and foreclosed residential shadow inventory, restored market prices appear to be lessening the appetite of such Wall Street investors.”
According to the report, the markets with the highest share of home flipping in the first quarter of 2016 were: Memphis, Tennessee (13.3 percent); Clarksville, Tennessee (12.5 percent); Deltona-Daytona Beach-Ormond Beach, Florida (11.8 percent); Fresno, California (11.3 percent); and Visalia-Porterville, California (11.1 percent).
Other markets that surpassed the national average of homes flipped included: Tampa, Florida (10.8 percent); Las Vegas, Nevada (10.3 percent); Virginia Beach, Virginia (9.9 percent); Miami, Florida (9.5 percent); and Jacksonville, Florida (9.4 percent).
House Flipping: Return On Investment
Home flipping continues to be a viable source of income. Profits on homes flipped reached a 10-year high in Q1 2016, which yielded an average gross profit of $58,250. The number is the highest it’s been since Q4 2005.
The report reveals there were seven markets with an average gross return on investment above 80 percent, which included: Philadelphia, Pennsylvania (103.7 percent); New Orleans, Louisiana (97.6 percent); Cincinnati, Ohio (88.5 percent); Buffalo, New York (85.1 percent); Cleveland, Ohio (83.8 percent); Jacksonville, Florida (81.8 percent); and Baltimore, Maryland (80.8 percent).
The gross house flipping profit was calculated by analyzing the difference between the purchase price and the flipped price, without rehab costs and other expenses.