Returns on home flipping fell to a four-year low in the second quarter of 2018, according to a new report by ATTOM Data Solutions.
“From an investors perspective, an ideal flipping market is one with a sizable inventory of distressed properties that can be purchased at a discount but also with strong demand evident in population growth, employment growth and wage growth,” ATTOM senior vice president Daren Blomquist tells Livabl.
Some 48,768 single family homes and condos were flipped in the second quarter of 2018 — 5.2 percent of all sales, down 0.2 per cent year-over-year.
“In this particular housing boom where scarcity of inventory is a hallmark, home flipping is especially relevant given that builders are not creating enough new housing inventory to keep up with demand,” says Blomquist.
There’s still quite a bit of money to be made in flipping houses. Flipped homes earned an average return of $65,520 in the second quarter. And, of all the homes flipped in the second quarter, over 32 percent were purchased via a distressed sale.
States with the highest share of home flips purchased via a distressed sale in the second quarter included New Jersey (64.1 percent), Delaware (60.3 percent), and New York (48.4 percent).
“The distressed inventory does not always need to be foreclosure. It could be distressed in the sense that it is older housing stock with deferred maintenance or characteristics that are not appealing to modern buyers,” says Blomquist.
Louisiana topped the list of states with the highest average return. Home flippers earned on average 102.5 percent on their investment.
Other states with high returns included Pennsylvania (100.3 percent), Ohio (81.4 percent), and Maryland (76.1 percent).
Washington, DC may have had the highest home flipping rate in the country at 8.3 percent, but homes flipped the fastest in New Hampshire (151 days).
In moderation, home flipping can be a sign of a healthy market where older housing stock is being renovated into sellable and attractive inventory for first time homebuyers, move-up buyers and investors.
Home flipping does become concerning when it is a too-dominant part of a market, as it can contribute to home values inflating too quickly.
“I’d put that line around 7 percent of sales or more. Nationwide we are well below this 7 percent threshold, but there are 15 metros above this threshold, led by Memphis, and including places such as Las Vegas, Phoenix, Tampa, Birmingham and Fresno,” says Blomquist.
Click here to read the entire report.