Home-Flipping Drops Along with Investment Returns
IRVINE, Calif. – In the third quarter, 56,566 U.S. single-family homes and condos were flipped, down 12.9% from the previous quarter and down 6.8% year-to-year, according to ATTOM Data Solutions’ third-quarter 2019 U.S. Home Flipping Report.
After an unusually lively flipping market in the spring of this year, the 3Q declines stood out as the largest quarterly and annual drops since the third quarter of 2014.
- 3Q flips made up 5.4% of all home sales during the quarter – down from 6% of all home sales in the second quarter of 2019, but up slightly from 5.2% a year ago.
- 3Q flips averaged a gross profit of $64,900 (the difference between the median sales price and median paid by investors), up 1.8% from the previous quarter and 3.5% year-to-year.
- That $64,900 $64,900 gross profit translated into a 40.6% return on investment (ROI) compared to the original acquisition price, down from 41.1% quarter-to-quarter and down 43.5% year-to-year
Overall, 3Q home flips were at their lowest point since 2011, and barely above the 40% ROI from the first quarter of this year.
“After a springtime selling binge earlier this year, the home-flipping business settled way down over the summer amid a continuing scenario of languishing profits,” says Todd Teta, chief product officer at ATTOM Data Solutions. “The retreat back to more normal levels of sales comes amid broader market forces that are making it harder and harder for investors to complete the kinds of deals they were getting as recently as last year. Those forces are keeping profits way down from post-Recession highs and show no signs of easing.”
Florida cities highlighted in ATTOM’s report
- In Gainesville, it takes an average 219 days to flip a home – the third highest in the nation. In No. 1, Provo, Utah, it takes 226 days.
- In Lakeland, 29.9% of home-flip buyers used an FHA loan, ranking it as No. 4 in the nation. In top-ranked Stockton, California, 37.3% of buyers relied on an FHA mortgage.
- 10 U.S. zip codes accounted for 25% of all U.S. home flips last year. In Miami-Dade County’s 33147 zip code, 31.3% of all home sales were flips, ranking it No. 4 in the nation.
According to Maksim Stavinsky, co-founder and COO of Roc Capital, declining profits in flipping are leading to greater interest in renting out renovated properties rather than quickly reselling them.
“We have been seeing a decline in projected and realized profits for borrowers on projects, despite the fact that borrower financing costs have been meaningfully coming down,” Stavinsky says. “This has led to much greater interest and activity in our rental programs. We expect these trends to continue.”
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