RealtyTrac: Home Flipping Reaches Two-Year High

Despite remaining more than 26 percent off its 2006 peak, RealtyTrac, Irvine Calif., said house flipping jumped by more than 20 percent in the first quarter to its highest rate in more than two years, with the average gross flipping profit at a 10-year high.

The company’s U.S. Home Flipping Report said 6.6 percent (43,740) of all single-family home and condo sales in the first quarter were flips, a 20 percent increase from the previous quarter and up 3 percent from a year ago to the highest rate of home flips since first quarter 2014.

The share of total home sales that were flips in the first quarter was still 26 percent below the 9.0 percent share at the peak of home flipping in Q1 2006, but was 55 percent above the recent trough in home flipping (4.3 percent of total home sales in Q3 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 RealtyTrac Senior Vice President Daren Blomquist.

Blomquist said 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, noting evidence of that pressure cooker environment in a handful of markets.

“The good news is that–despite the 20 percent jump in the first quarter–home flipping nationally is not far above its historic norm, and home flippers in most markets appear to be behaving rationally and responsibly,” Blomquist said.

The report said in the first quarter, 71 percent homes flipped were purchased by the home flipper with cash, compared to only 37 percent who purchased with cash at the height of the flipping boom. On average, flippers are buying the homes they flip at a 27 percent discount below full market value and selling them at a 6 percent premium above full market value, helping to deliver strong flipping returns on average.

“Spending their own money rather than other people’s money is keeping flippers conservative,” Blomquist said.

The report said the share of home flipping reached record highs in nine of 126 metropolitan statistical analyzed (7 percent), including Baltimore; Buffalo, N.Y.; Huntsville, Ala.; New Orleans; and York-Hanover, Pa.; Seattle; Virginia Beach, Va.; Bakersfield, Calif.; and San Diego.

RealtyTrac said home flipping as a share of total sales increased from a year ago in 75 out of 126 metropolitan statistical areas analyzed for the report (60 percent). Among markets with a population of at least one million, those with the biggest increases in the rate of flipping 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).

Markets with the highest share of flipping in the first quarter were Memphis (13.3 percent); Clarksville, Tenn. (12.5 percent); Deltona-Daytona Beach-Ormond Beach, Fla. (11.8 percent); Fresno, Calif. (11.3 percent); and Visalia-Porterville, Calif. (11.1 percent). Other markets where the share of homes flipped surpassed the national average included Tampa (10.8 percent); Las Vegas (10.3 percent); Virginia Beach (9.9 percent); Miami (9.5 percent); and Jacksonville, Fla. (9.4 percent).

The report said homes flipped in the first quarter yielded an average gross profit of $58,250, the highest average gross flipping profit since Q4 2005, a more than 10-year high. This represented an average 47.8 percent return on the original purchase price, the highest average gross flipping ROI since Q3 2012.

Markets with the highest average gross flipping ROI in the first quarter were East Stroudsburg, Pa. (212.1 percent); Reading, Pa. (136.4 percent); Pittsburgh (126.8 percent); Flint, Mich. (105.8 percent); and New Haven, Conn. (104.8 percent).

The report can be found at http://www.realtytrac.com/news/real-estate-investing/q1-2016-u-s-home-flipping-report/.