Real Estate

Home flipping reaches 6-year high

Why it’s not a repeat of 2006

Home flipping just reached its highest level since 2010 as more investors entered the market in the second quarter, according to the U.S. Home Flipping Report by ATTOM Data Solutions, a source for comprehensive housing data and the new parent company of RealtyTrac.

Home flipping increased to 51,434 single-family homes and condos in the second quarter this year. That’s up 14% just from last quarter, and 3% from last year, according to the report.

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(Source: ATTOM Data Solutions)

A home flip is defined as a property that is sold in an arms-length sale for the second time in a 12-month period based on publicly recorded sales and deed data. The data is collected from over 950 counties and accounts for more than 80% of the U.S. population.

“Home flipping is becoming more accessible for smaller operators thanks to an increasingly competitive lending environment with more loan options for real estate investors, who are also benefitting from the historically low mortgage interest rates,” said Daren Blomquist, ATTOM Data Solutions senior vice president.

“That favorable lending environment for flippers has helped to fuel the recent flipping frenzy we’ve seen over the past five quarters,” Blomquist said.

Homes flipped in the second quarter made up 5.5% of total home sales. This is down from 6.7% of total home sales last quarter, but up from 5.4% in the second quarter of 2015.

The total number of investors that completed at least one home flip increased to 39,775, the highest number of home flippers since 2007.

“We’re starting to see home flipping hit some milestones not seen since prior to the financial crisis, which is somewhat concerning, but there are a couple of important differences in the home flipping of 2016 compared to 2006 when home flipping peaked during the last housing boom,” Blomquist said.

“First, home flippers are realizing a much bigger gross ROI in 2016, averaging 49% in the first two quarters compared to an average gross ROI of just 27% in 2006,” he said. “Second, while an increasing number of flippers are financing their purchases, more than two-thirds are still using cash to purchase compared to about one-third using cash to purchase back in 2006.”

That being said, those who are using cash is decreasing. In the second quarter, investors who used cash to purchase the home decreased to 68.3%, down from 71.1% last quarter and 69.6% last year. This marks the lowest level of those using cash for their investment since 2008.

“The single family real estate sector is becoming more institutional, which means that more financing is available and more attractive,” said Varun Pathria, CEO at Asset Avenue, a company that provides investor rehab, bridge and rental loans.

“The entrepreneurs are also becoming savvier and as a result are looking to leverage their capital more,” Pathria said. “There continues to be a fringe group of people who enter and exit the sector based upon opportunity and those people are hard to predict but generally look to take maximum leverage.”

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