Home Flipping Up in 2015 After Four-Year Slide, RealtyTrac Year-End Report Shows
Home Flipping Up in 2015 After Four-Year Slide, RealtyTrac Year-End Report Shows
RealtyTrac’s Year-End and Q4 2015 U.S. Home Flipping Report shows that 179,778 U.S. single-family homes and condos were flipped in 2015. That accounts for 5.5 percent of all single-family home and condo sales during the year.
The 5.5 percent share of U.S. home flips in 2015 was up from a 5.3 percent share in 2014, marking the first annual increase in the share of homes flipped following four consecutive years of decreases. The share of homes flipped in 2015 increased from the previous year in 83 of 110 U.S. metropolitan statistical areas nationwide analyzed for the report (75 percent).
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.
“As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac. “Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008.”
HIGHEST NUMBER SINCE 2007
There were 110,008 investors or entities that completed at least one home flip in 2015, the highest number of home flippers since 2007, when there were 130,603 home flippers. The peak in the number of active home flippers was 259,192 in 2005. There were 1.63 home flips per investor in 2015, the lowest ratio of flips per investor since 2008.
“More inexperienced home flippers with a smaller financial cushion could be a sign of an overspeculative market, but the data indicates that flippers in 2015 continued to operate within relatively conservative margins,” Blomquist continued. “Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and resold by the flipper at a 5 percent premium above estimated market value.”
The 5.5 percent share of U.S. homes flipped in 2015 was still well below the peak of 8.2 percent of U.S. homes flipped in 2005.
Counter to the national trend, the share of homes flipped in 2015 was above 2005 levels in 12 of the 110 metro areas (11 percent) analyzed in the report, including Pittsburgh (19 percent above 2005 levels); Memphis (18 percent above 2005 levels); Buffalo, N.Y. (12 percent above 2005 levels); San Diego (4 percent above 2005 levels); Seattle (4 percent above 2005 levels); Birmingham, Ala. (4 percent above 2005 levels); and Cleveland (3 percent above 2005 levels).
“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where the share of homes flipped in 2015 was down from 2014 despite being above 2005 levels. “The problem with a rise in home flipping is that these sales artificially inflate home prices, making housing even less affordable for buyers and increasing the risk of a bubble. I’m happy to see that the percentage of home flipping sales in Seattle does not exceed the national average and that they’re down from a year ago. This makes sense given our affordability constraints and lower potential for profits for home flippers.”
BIGGEST YEAR-OVER-YEAR INCREASES
Metro areas with the biggest year-over-year increase in share of flips were Lakeland, Fla. (up 50 percent); New Haven, Conn. (up 45 percent); Jacksonville, Fla. (up 41 percent); Homosassa Springs, Fla. (up 40 percent); and Akron, Ohio (up 37 percent).
“We continue to see distressed properties funnel through the pipeline in South Florida, which makes it ripe for investors to profit in a strong selling market,” said Mike Pappas, CEO and president at the Keyes Company, covering the South Florida market. “There are always sellers who will discount for a quick cash sale and open the door for astute investors to make a good return by repositioning the property.”
The Miami metro area had the most homes flipped of any market nationwide in 2015, with 10,658, representing 8.6 percent of all Miami-area home sales for the year and up 4 percent as a share of all sales from 2014.
AVERAGE GROSS FLIPPING PROFIT AT 10-YEAR HIGH
Homes flipped in 2015 yielded an average gross profit of $55,000 nationwide, the highest average gross profit for homes flipped nationwide since 2005, when the average gross profit on flipped homes was $58,750. 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 experts estimate typically run between 20 percent and 33 percent of the property’s after repair value).
The average gross flipping profit of $55,000 in 2015 represented an average gross return on investment (ROI) of 45.8 percent, up from 44.2 percent in 2014 and up from a 35.3 percent in 2005. The annual peak in average gross flipping ROI was 2013 at 46.0 percent. The average gross ROI is the gross profit expressed as a percentage of the original purchase price.
HIGHEST AVERAGE GROSS FLIPPING PROFITS, ROI
Among 110 metro areas with at least 250 flips in 2015, those with the highest average gross flipping profit in dollars in 2015 were San Francisco ($145,000); San Jose, Calif. ($145,000); New York ($120,000); Los Angeles ($115,000); and Oxnard-Thousand Oaks-Ventura, Calif. ($110,000).
Markets with the highest average gross ROI on homes flipped in 2015 were Pittsburgh (129.5 percent); New Orleans (99.2 percent); Philadelphia (98.4 percent); Cincinnati (89.7 percent); and New Haven, Conn. (89.6 percent).
Markets with the biggest increase in average flipping gross ROI in 2015 compared to 2014 were Boise, Idaho (85 percent increase); Hartford, Conn. (51 percent increase); Ocala, Fla. (49 percent increase); Homosassa Springs, Fla. (41 percent increase); and Huntsville, Ala. (39 percent increase).
STATES WITH HIGHEST SHARE OF HOME FLIPS
States with the highest share of flips in 2015 were Nevada (8.8 percent), Florida (8.0 percent), Alabama (7.4 percent), Arizona (7.1 percent) and Tennessee (6.9 percent).
Among states with at least 1,000 single-family homes flipped in 2015, those with the biggest year-over-year increase in share of flips were Connecticut (up 23 percent), Oregon (up 21 percent), Maryland (up 19 percent), Illinois (up 18 percent) and New Jersey (up 17 percent).
Among 110 metro areas with at least 250 flips in 2015, those with the highest share of flipping as a percentage of all single-family home sales were Memphis (11.1 percent); Fresno, Calif. (9.2 percent); Las Vegas (9.2 percent); Tampa (9.2 percent); and Deltona-Daytona Beach-Ormond Beach, Fla. (9.1 percent).
RealtyTrac analyzed sales deed data and automated valuation data for this report. A single-family home or con-do flip was any transaction that occurred in the second 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 calculatedby 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 RealtyTrac’s Data Solutions Department at 800-462-5193 or email@example.com.