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Home Flipping Returns at Two-Year Low

December 14, 2017

Mike Sorohan - December 07, 2017

Home flipping is still a lucrative business--just not quite as lucrative as it was a year ago.

ATTOM Data Solutions, Irvine, Calif., said single-family homes and condos flipped in the third quarter yielded an average gross flipping profit of $66,448 per flip, representing an average 47.7 percent return on investment for flippers--down from 48.7 percent in the previous quarter and down from 51.2 percent a year ago, to the lowest average gross flipping ROI since Q2 2015.

The company's quarterly U.S. Home Flipping Report said 48,685 single-family homes and condos flipped nationwide in the third quarter, a rate of 5.1 percent, down from 5.6 percent in the previous quarter and unchanged from a year ago. Year-to-date 153,727 single family homes and condos nationwide have flipped, nearly equal with the 153,854 flipped through the first three quarters of 2016, when the number of homes flipped reached a 10-year high.

"Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins," said Daren Blomquist, senior vice president with ATTOM Data Solutions. "A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip."

ATTOM reported the home flipping rate increased from a year ago in 44 of 93 metropolitan statistical areas analyzed in the report (47 percent), led by Baton Rouge, La. (up 140 percent); Winston-Salem, N.C. (up 58 percent); Salem, Ore. (up 51 percent); Indianapolis (up 51 percent); and Buffalo, N.Y. (up 47 percent). The flipping rate decreased from a year ago in 49 metros (53 percent), including Los Angeles (down 6 percent); Washington, D.C. (down 6 percent); Miami (down 15 percent); Boston (down 5 percent); and San Francisco (down 2 percent)

Counter to the national trend, average gross home flipping ROI in the third quarter increased from a year ago in 34 metros (37 percent), led by Baton Rouge (up 116 percent); Spokane, Wash. (up 46 percent); Indianapolis (up 35 percent); Fresno, Calif. (up 34 percent); and Greensboro-High Point, N.C. (up 34 percent). Metro areas with the lowest average gross home flipping ROI were Austin, Texas (18.7 percent); Reno, Nev. (22.3 percent); Dallas-Fort Worth, Texas (22.7 percent); Kansas City (24.0 percent); and Salt Lake City, Utah (24.9 percent).

The report said with home flips representing 8.3 percent of all home sales in the third quarter, the District of Columbia posted a higher home flipping rate, followed by Nevada (7.6 percent); Tennessee (7.4 percent); Louisiana (7.4 percent); Alabama (7.1 percent); and Arizona (6.9 percent).

Other report highlights:

--The 48,685 homes flips in the third quarter were completed by 38,928 investors, a ratio of 1.251 flips per investor, the lowest ratio of flips per investor since Q2 2008.

--Share of homes flipped in the third quarter that were purchased by the flipper with financing represented 34.6 percent of all homes flipped, down from 35.5 percent in the previous quarter but still up from 32.3 percent a year ago.

--Share of homes flipped in third quarter that were purchased by the flipper in some stage of foreclosure or as bank-owned homes represented 38.8 percent of all homes flipped, down from 40.2 percent in the previous quarter and down from 43.9 percent a year ago.

--Average square footage of homes flipped in the third quarter fell to 1,405, down from 1,412 the previous quarter to the smallest average square footage on record for the report, going back to Q1 2000.

--Homes flipped in the third quarter were purchased at an average discount of 23.9 percent below estimated full market "after repair" value, down from an average discount of 24.2 percent in the previous quarter to the lowest average discount since Q4 2013.

--Homes flips completed in the third quarter took an average of 181 days, down from 185 days in the previous quarter and down from 182 days a year ago.

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