Average Gross Flipping Profit at a More Than 10-Year High;
IRVINE, Calif. – June 2, 2016 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q1 2016 U.S. Home Flipping Report, which shows that 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 (see full methodology below).
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,” said 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 continued. “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, Maryland; Buffalo, New York; Huntsville, Alabama; New Orleans, Louisiana; and York-Hanover, Pennsylvania.
Other markets where the share of home flipping has reached new highs since home prices bottomed out in 2012 include Seattle, Washington; Virginia Beach, Virginia; Bakersfield, California; and San Diego, California.
“It’s somewhat surprising to see flipping is on the rise in the Seattle area given our rapidly rising home prices,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where the share of homes flipped in Q1 2016 increased 32 percent from the previous quarter and were up 5 percent 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. 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.”
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).
“As available listing inventory has remained low across Ohio, rising residential home prices and strong buyer demand are fueling a resurgence of small investors entering the market to rehab and flip residential homes,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus housing markets, all of which posted a year-over-year increase in home flipping rate. “While in recent years, large institutional investors had been leading the way in purchase of mortgage notes and foreclosed residential shadow inventory, restored market prices appear to be lessening the appetite of such Wall Street investors.”
Markets with the highest share of flipping in the first quarter were Memphis, Tennessee (13.3 percent); Clarksville, Tennessee (12.5 percent); Deltona-Daytona Beach-Ormond Beach, Florida (11.8 percent); Fresno, California (11.3 percent); and Visalia-Porterville, California (11.1 percent).
Other markets where the share of homes flipped surpassed the national average included Tampa, Florida (10.8 percent); Las Vegas (10.3 percent); Virginia Beach (9.9 percent); Miami (9.5 percent); and Jacksonville, Florida (9.4 percent).
“There continues to be good opportunities for cash investors in the South Florida market,” said Mike Pappas, CEO and president at the Keyes Company, covering the South Florida market. “One out of 10 transactions in the first quarter were flipped investor deals yielding an average $65,000 gross profit with an average 51 percent gross ROI.”
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, Pennsylvania (212.1 percent); Reading, Pennsylvania (136.4 percent); Pittsburgh, Pennsylvania (126.8 percent); Flint, Michigan (105.8 percent); and New Haven, Connecticut (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, New York (85.1 percent); Cleveland, Ohio (83.8 percent); Jacksonville, Florida (81.8 percent); and Baltimore, Maryland (80.8 percent).
RealtyTrac analyzed sales deed data and automated valuation data for this report. A single family home or condo flip was any transaction that occurred in the quarter where a previous sale on the same property had occurred within the last 12 months. Average gross profit was calculated by subtracting the average price for the first sale (purchase) from the average price of the second sale (flip). Average gross return on investment was calculated by dividing the average gross profit by the first sale (purchase) price.
Data Licensing and Custom Report Order
Investors, businesses and government institutions can contact RealtyTrac to purchase the full dataset behind the Year-End and Q4 2015 U.S. Home Flipping report, including data at the state, metro, county and zip code level. The data is also available via bulk license or in customized reports. For more information contact our Data Solutions Department at 800.462.5193 or email@example.com.
RealtyTrac is a leading provider of comprehensive U.S. housing and property data, including nationwide parcel-level records for more than 130 million U.S. properties. Detailed data attributes include property characteristics, tax assessor data, sales and mortgage deed records, distressed data, including default, foreclosure and auctions status, and Automated Valuation Models (AVMs). Sourced from RealtyTrac subsidiary Homefacts.com, the company’s proprietary national neighborhood-level database includes more than 50 key local and neighborhood level dynamics for residential properties, providing unrivaled pre-diligence capabilities and a parcel risk database for portfolio analysis. RealtyTrac’s data is widely viewed as the industry standard and, as such, is relied upon by real estate professionals and service providers, marketers and financial institutions, as well as the Federal Reserve, U.S. Treasury Department, HUD, state housing and banking departments, investment funds and tens of millions of consumers.
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