If you feel like everyone you know has gotten into the flipping game, your instincts are correct. According to 2016 Year-End U.S. Home Flipping Report by ATTOM Data Solutions, the number of folks making a living from house flipping reached a nine-year high last year. Data shows that in 2016, 126,256 individuals and corporate entities flipped homes — the highest number since 2007.
Low housing inventory and an influx of capital meant the number of properties flipped in 2016 reached peaks not seen since 2006. And the report shows profits from house flipping are also at an all-time high, with the average return on investment hovering at 49.2 percent.
Interestingly, the study lists 39 zip codes where at least 20 percent of all home sales during the year were home flips – including zip codes in Texas.
Housing Affordability Rears its Ugly Head
We all love a good before-and-after. But once you get past the reveal, a darker truth hangs over the house flipping market. Housing affordability rears its ugly head, yet again.
In statement, Matthew Gardner, chief economist at Windermere Real Estate, who covers the Seattle market, sees flipping as an overall detractor. “I believe flipping serves as a negative for any housing market because it further erodes housing affordability, but if there’s a demand for it in the market, it’s a trend we will continue to see.”
Flipping contributes to housing affordability issues primarily because the types of homes being flipped changed. As the inventory of higher-end properties declined, flippers’ interest in making a buck did not. In 2016, the median price of flipped properties increased while the median size dipped. Flippers moved on to historically ‘affordable’ property.
“Investors in search of flipping returns are increasingly willing to move to secondary and tertiary housing markets and neighborhoods with older, smaller properties that are available at a deeper discount,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Given that many of these markets are more affordable, we are also seeing a higher share of the flipped homes sold to FHA buyers, with that share reaching a four-year high of 19.6 percent in 2016.”
This trend means that first-time and lower-income homebuyers are now more likely than ever to purchase a flipped property, at a significantly higher price. According to the report, homes flipped in 2016 sold for a gross flipping profit of $62,624 above the median purchase price of $127,276.
Sixty thousand dollars is nothing to scoff at. Especially for potential first-time buyers. And a continuation of this trend could see younger, cash-strapped buyers entering the market later, or barred from entering it altogether.