Home Flipping Increases 20 Percent
Home flipping increased in Q1, according to RealtyTrac’s Q1 2016 U.S. Home Flipping Report. According to the report, 6.6 percent (43,740) of all single family home and condo sales in the first quarter of 2016 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 the first quarter of 2014.
For the report, a home flip is defined as a property that is 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 more than 950 counties accounting for more than 80 percent of the U.S. population.
The 6.6 percent share of total home sales that were flips in Q1 2016 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.
“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,” says Daren Blomquist, senior vice president at RealtyTrac. “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.
“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 continues. “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. Spending their own money rather than other people’s money is keeping flippers conservative. 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 Hits New All-Time Highs in 7 Percent of Markets
Counter to the national trend, the share of home flipping reached new all-time highs in Q1 2016 in nine of 126 metropolitan statistical analyzed (7 percent) including Baltimore, Md.; Buffalo, N.Y.; Huntsville, Ala.; New Orleans, La.; and York-Hanover, Penn.
Other markets where the share of home flipping has reached new highs since home prices bottomed out in 2012 include Seattle, Wash.; Virginia Beach, Va.; Bakersfield, Calif.; and San Diego, Calif..
Flipping Share up from a Year Ago in 60 Percent of Local Markets
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 1 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, Tenn. (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, Fla. (10.8 percent); Las Vegas (10.3 percent); Virginia Beach (9.9 percent); Miami (9.5 percent); and Jacksonville, Fla. (9.4 percent).
Gross Flipping Profit Increases to More Than 10-Year High
Homes flipped in Q1 2016 yielded an average gross profit of $58,250, the highest average gross flipping profit since Q4 2005 — a more than 10-year high. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property’s after repair value).
The average $58,250 gross flipping profit in Q1 2016 represented an average 47.8 percent return on the original purchase price, the highest average gross flipping ROI since Q3 2012.
Markets with Highest Average Flipping ROI
Markets with the highest average gross flipping ROI in Q1 2016 were East Stroudsburg, Penn. (212.1 percent); Reading, Penn. (136.4 percent); Pittsburgh, Penn. (126.8 percent); Flint, Mich. (105.8 percent); and New Haven, Conn. (104.8 percent).
Other markets with an average gross ROI above 80 percent included Philadelphia (103.7 percent); New Orleans (97.6 percent); Cincinnati (88.5 percent); Buffalo, N.Y. (85.1 percent); Cleveland, Ohio (83.8 percent); Jacksonville, Fla. (81.8 percent); and Baltimore, Md. (80.8 percent).
For more information, visit www.realtytrac.com.
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