Home Flipping Activity Drops, Returns Remain Near Seven-Year Low
In the third quarter of 2019, overall home flips dropped 12.9% over the previous quarter and were down 6.8% from a year ago, according to ATTOM Data Solutions’ third-quarter 2019 U.S. Home Flipping Report.
Home flipping rates were down in 78% of the local markets (115 of 147) analyzed in the report.
This decline came after an unusually active flipping market in the spring. The declines stood out as the largest quarterly and annual drops since the third quarter of 2014.
The homes flipped in the third quarter represented 5.4% of all home sales during the quarter. That level was down from 6% percent of all home sales in second quarter 2019, but up slightly from 5.2% a year ago.
Homes flipped during the reporting period typically generated a gross profit of $64,900, an increase of 1.8% from the second quarter and 3.5% from a year ago.
Still, that gross flipping profit translated into a 40.6% return on investment compared to the original acquisition price, which marked a decrease from the 41.1% gross flipping ROI in the second quarter. The latest returns on home flips stood at the second-lowest point since 2011, 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,” said 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.”
Maksim Stavinsky, co-founder and COO of Roc Capital, noted that borrowers’ declining profits on flips are leading to much greater interest in renting out renovated properties instead of flipping 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,” said Stavinsky. “This has led to much greater interest and activity in our rental programs. We expect these trends to continue.”
While home flips purchased with financing continued to drop in the third quarter, those bought with cash climbed, up from 56.3% in the second quarter and 54% a year ago.
Eight markets bucked the trend, however, and had third quarter 2019 gross ROI flipping margins of at least 100%. Those markets included Pittsburgh, Pennsylvania (132.6%); Scranton, Pennsylvania (122.5%); Flint, Michigan (111.2%); Cleveland, Ohio (109.8%) and Hickory-Lenoir-Morganton, North Carolina (109.7%).
Homes flipped in the third quarter of 2019 were sold for a median price of $224,900, with a gross flipping profit of $64,900 above the median purchase price of $160,000. That profit figure was up from a gross flipping profit of $63,750 in the previous quarter and up $62,700 in the third quarter of 2018. But with prices rising on investor-purchased homes, the median 40.6% return on investment was down from the post-Recession peak of 52.1% in the second and third quarters of 2016.
The average time to flip nationwide in the third quarter was 177 days.
