With Flipping Near Historic Highs, Flippers Play Different Game

CoreLogic, Irvine, Calif., said home flipping has increased on a year-over-year basis for 12 consecutive quarters to the fourth-highest level since 2002.

But CoreLogic Chief Economist Ralph McLaughlin said the flipping game is different this time, with short-term investors focusing more on adding value than speculating on prices.

The report said in the fourth quarter, the flipping rate in the U.S. reached 10.9 percent of all home sales, just behind first quarter 2018 (11.4 percent, the highest on record), first quarter 2006 (11.3 percent) and the first quarter 2005 (11.1 percent). The flipping rate in the fourth quarter was also the highest rate for any fourth quarter in CoreLogic data.

“Fluctuations in flipping activity over time has predominantly occurred not from the involvement of short-term flippers–buying and reselling within six months–but rather from longer-term flippers–one year or more,” McLaughlin said. “It could be a combination of: (1) as prices rise during a housing market expansion, flippers undertake more complicated and time-consuming flips (2) less experienced flippers enter the game, and can’t turn around flips as fast as more experienced flippers, or (3) tax-incentives encourage flippers to take advantage of market appreciation by holding onto properties longer.”

The report also said flipping rates vary sharply across the country, tending to be highest in Sun Belt metros and lowest in Rust Belt metros. Eight of the top 10 metros with the highest flipping rate in the fourth quarter were in the Sun Belt, with Birmingham, Memphis, and Tampa leading the pack with rates of 16.5, 16.2, and 15.1 percent, respectively. Just two of the top 10 were in the Rust Belt, with Camden and Philadelphia at 14.9 and 14 percent.

At the low-end, flipping activity tends to be lowest in Rust Belt metros, although two Sun Belt metros, Austin and Houston, make the list with flipping rates at 4.3 and 5.9 percent, respectively. Several metros in Connecticut also lag the country, with Bridgeport, Hartford, and New Haven showing flipping rates of 4.4, 5.1 and 5.3 percent, respectively. Five other Rust Belt metros make the list: Springfield, Mass., Pittsburgh; Kansas City, Mo.; Elgin, Ill.; and Kenosha, Wis.

The report said historically, gross economic returns in the U.S. have been on a “wild ride.” From 2002-2007, both economic returns and annualized economic hovered at 4-5 percent. “Because closing costs when selling a home are anywhere from 5-8 percent, these findings suggest that the only other way that flippers were trying to make money was by speculating on home value appreciation,” McLaughlin said.

After 2007, CoreLogic said returns “skyrocketed” for flippers to a median of around 40 percent (and near 100 percent when annualized), “presumably because they were able to purchase distressed properties at deep discounts and quickly resell them at a profit.”