RealtyTrac: Home Flipping On The Decline As Prices Rise

Posted by Patrick Barnard on August 25, 2014 No Comments
Categories : Residential Mortgage

The trend of flipping homes appears to be waning, as the average profit on each home that is ‘flipped’ continued to fall in the second quarter, due mainly to rising prices, RealtyTrac's Q2 2014 U.S. Home Flipping Report shows.

Nearly 31,000 single-family homes were flipped nationwide in the second quarter, representing 4.6% of all single-family home sales – down from 5.9% in the first quarter and down from 6.2% in the second quarter of 2013.

RealtyTrac defines a ‘flip’ as a home that is purchased and subsequently sold again within six months.

As mentioned, rising home prices have done much to take the steam out of the flipping trend: On average, home flippers saw an average gross return of 21% on their initial investment in the second quarter – down from 24% in the first quarter and down from 31% a year ago.

As is to be expected, most of the flipping occurred among lower-priced properties. The average return on investment (ROI) for single-family homes flipped in the second quarter was $46,000.

The ROI on each flip, however, is typically contingent on how much the ‘flipper’ invested in the property prior to selling it and, more specifically, what improvements were made.

‘Home flipping is settling back into a more historically normal pattern after a flurry of flipping during the recent run-up in home prices in 2012 and 2013,’ says Daren Blomquist, vice president at RealtyTrac, in a statement. ‘Flippers no longer have the luxury of 20 to 30 percent annual price gains to pad their profits. As the market softens, successful flippers will need to focus on finding properties that they can buy at a discount and efficiently add value to.’

Another reason flips are less popular is that they take longer to complete: According to the report, it took an average of 187 days to complete a flip in the second quarter, whereas it only took 164 days in the previous quarter and 135 days in the second quarter of 2013.

What's interesting is that a greater number of high-end homes were flipped in the second quarter. Homes with a flipped sale price of $750,000 or higher represented 4.10% of all homes flipped during the quarter – up 21% from a year ago – while homes with a flipped price of $400,000 to $750,000 represented 12.66% of all flips – up 10% from a year ago.

Flips on homes priced below $400,000 declined as a share of all flips from a year ago.

The best returns on homes flipped in the second quarter were on homes with a flipped sale price between $750,000 and $1 million. These homes yielded an average gross ROI of about 41%, according to the report.

Homes in the $50,000 to $100,000 range had the second best return on ROI, at 37%, followed by homes above $1 million at 35%.

Metropolitan areas with the most flips in the second quarter included Phoenix (1,438 flips), Los Angeles (1,371 flips) and Miami (1,290 flips). However, all three metro areas saw declines in flipping activity as a share of total home sales.

Markets with the best return on flips in the second quarter included Pittsburgh (106%); New Orleans (76%); Baltimore (73%); Virginia Beach, Va. (66%); and Daytona Beach, Fla. (63%).

For more, click here.

Register here to receive our Latest Headlines email newsletter




Leave a Comment