National home flipping returns are down to a two-year low due to a declining number of distressed properties selling for low prices and heightened competition from home flippers prepared to accept smaller margins, according to property data warehouse Attom Data Solutions.
A home flip as defined by Attom Data Solutions is a property sold at arms-length for the second time within a 12-month period. Home flips represented 8.3 percent of all home sales in the third quarter of 2017. The District of Columbia posted the highest home flipping rate by state at 7.6 percent, followed by Nevada, Tennessee, Louisiana and Alabama.
Single-family homes and condos flipped in Q3 yielded an average gross profit of $66,448 per flip, giving an average 47.7 percent return on investment, down from 48.7 percent from the previous quarter, the company found.
“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,” said Daren Blomquist, senior vice president at Attom Data Solutions.
Homes flipped in Q3 2017 were bought at an average discount of 23.9 percent below full market “after repair” value, which was down from an average discount of 24.2 percent in the previous quarter.
The 48,685 home flips done in Q3 2017 were made by 38,928 investors at a ratio of 1.25 flips per investor, the lowest rate per investor since the second quarter of 2008.
Attom Data Solutions is seeing the country’s busiest flipping activity in Baton Rouge, Lousiana, up 140 percent; Winston-Salem, North Carolina, up 58 percent; Salem, Oregon, and Indianapolis, Indiana; both up 51 percent; and Buffalo, New York, up 47 percent.
Cities where the Q3 2017 flipping rate decreased compared with a year ago included Minneapolis-St. Paul, down 18 percent; Miami, down 15 percent; Tampa-St. Petersburg down 9 percent; Seattle, down 8 percent; Los Angeles and Washington, D.C., both down 6 percent; Boston, down 5 percent; and San Francisco, down 2 percent.
“Across Southern California, investors are finding home flips for investment purchases to be a challenge due to an aging housing inventory requiring greater repair cost coupled with higher acquisition costs due to low available inventory,” said Michael Mahon, president at First Team Real Estate, which covers the Southern California housing market. “That equates to increased risk for return on investment that is keeping many potential investors on the sidelines.”
Added Matthew Gardner, chief economist at Windermere Real Estate: “Although the number of flips in the Seattle market dropped back to levels not seen since early 2016, they are still well above the levels seen before the recession. I anticipate that the number of flips will continue to fall as home price growth eats into profits, which have been on the decline since 2013.”
The metro areas with the highest gross home-flipping ROI in the third quarter this year were Pittsburgh (147.7 percent ); Baton Rouge, Louisiana (122.2 percent); and Philadelphia, (114 percent). Those with the lowest average gross home flipping ROI were Austin, Texas (18.7 percent); Reno, Nevada (22.3 percent); and Salt Lake City (24.9 percent).
The report showed that 48,685 single-family homes and condos were flipped nationwide in the third quarter down from 5.6 percent in the previous quarter and the same as a year ago. 2017 home flips are still on pace to equal the 10-year high reported in 2016, according to Attom Data Solutions.
In the year to date, 153,727 homes and condos were flipped nationwide, nearly in-line with the year prior, when 153,854 flips were booked.