RealtyTrac, a source for comprehensive housing data, today announced that 6.6% of total single family home and condo sales in the first quarter of 2016 were flips, according to its Q1 2016 U.S. Home Flipping Report.
This demonstrates an increase of 20% from last quarter, and an increase of 3% year-over-year to the highest rate of home flips in two years, since the first quarter of 2014.
The report defines a home flip as a property sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by RealtyTrac in over 950 counties, accounting for over 80% of the U.S. population.
Even with this recent increase, home flips are still 26% below the 2006 peak when 9% of market share was home flipping. However, it is 55% above 2014’s third quarter’s market share of 4.3%.
“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,” RealtyTrac senior vice president Daren 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, and we are starting to see evidence of that pressure cooker environment in a handful of markets,” Blomquist said.
That being said, Blomquist explains that the numbers now are close to their historic average.
“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. In the first quarter, 71% of homes flipped were purchased by the home flipper with cash, compared to only 37% who purchased with cash at the height of the flipping boom.”
“Spending their own money rather than other people’s money is keeping flippers conservative,” Blomquist said. “On average they 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.”
Home flipping hit an all-time high in 7% of markets including 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 Matthew Gardner, Windermere Real Estate chief economist, covering the Seattle market, where the share of homes flipped in the first quarter of 2016 increased 32% from the previous quarter and 5% from a year ago.
“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,” Gardner said. “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.”
Profits from home flipping hit their highest point since the fourth quarter of 2005, with an average profit of $58,250. However, this number does not include costs for repairs, which is usually about 20% to 33% of the property’s value after repairs.
This year’s first quarter home flipping profits yielded an average 47.8% return on the original purchase price.