Us property market sees fewer flips
A home in Los Angeles after being flipped Photo: Spot US
There are fewer flips in the US housing market, according to new research, as the country continues its gradual recovery.
Flipping is the process by which an investor buys a property, only to sell it within a year for a profit. 30,013 single family homes were flipped in the second quarter of 2015, according RealtyTrac, accounting for 4.5 per cent of single family home sales - down from 5.5 per cent in the previous quarter and 4.9 per cent a year ago. The figure is also a marked drop from the 8 per cent share of activity accounted for by flips in the peak year of 2006.
The average gross profit — the difference between the purchase price and the flipped price — for completed flips in the second quarter was $70,696, up from $67,753 in the previous quarter and up from $49,842 a year ago. Indeed, house prices have risen significantly compared to the trough post-recession, although increases are slowing down now, as demand cools down and supply attempts to catch up.
The share of flips acquired in foreclosure has also fallen to 7.5-year low, which means that flippers are getting squeezed on both sides of the profit equation.
"Despite the rise in flipping returns in the second quarter, home flippers should proceed with caution in the next six to 12 months as home price appreciation slows and a possible interest rate increase could shrink the pool of prospective buyers for fix-and-flip homes," cautions Daren Blomquist, vice president at RealtyTrac.
"Experienced flippers will often need to enter into higher-risk markets with less solid economic fundamentals to chase better yields. Flipping is not always profitable, as evidenced by the fact that flips on low-end homes priced below $50,000 actually yielded negative returns in the second quarter.”
Nonetheless, in the some of the more popular markets among foreign investors, flipping remains a significant part of market activity. Those where flips accounted for the highest percentage of all home sales were Fernley, Nevada (11.4 per cent), Miami, Florida (9.6 per cent), Palm Coast, Florida (9.2 per cent), Memphis, Tennessee (9.0 per cent), Tampa, Florida (8.9 per cent), Deltona, Florida (8.7 per cent), and Sarasota, Florida (8.1 per cent).
"Flipped homes are now under 10 percent of our overall market dropping 7 percent from last year," adds Mike Pappas, CEO and president of Keyes Company, covering the South Florida market. "However, our long process of foreclosure due to our judicial state bodes well for the serious investor for the next few years."