Housing Bubble 2.0: Here Are The Zip Codes Where 1 In 4 Home Sales Are Flips
ATTOM Data Solutions today released its Q2 2017 U.S. Home Flipping Report which reveals that residential home flippers, the same speculative crew that nearly blew up the entire global financial system in 2008, are now making more money than ever. In fact, in 2Q the average flipped house generated gross profits of $67,516 which is well above the $60,000 peak previously set back in 2005.
The report also shows an average gross flipping profit of $67,516 for homes flipped in the second quarter, representing a 48.4 percent return on investment (ROI) for flippers — down from 49.0 percent in the previous quarter and down from 49.6 percent in Q2 2016 to the lowest level since Q3 2015. After peaking at 51.1 percent in Q3 2016, average gross flipping ROI nationwide has decreased for three consecutive quarters.
“Home flippers are employing a number of strategies to give them an edge in the increasingly competitive environment where flipping yields are being compressed,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Many flippers are gravitating toward lower-priced areas where discounted purchases are more readily available — often due to foreclosure or some other type of distress. Many of those lower-priced areas also have strong rental markets, giving flippers a consistent pipeline of demand from buy-and-hold investors looking for turnkey rentals.
“In markets where distressed discounts have largely dried up, flippers are showing more willingness to leverage financing when acquiring properties, often purchasing closer to full market value and then relying more heavily on price appreciation to fuel their flipping profits,” Blomquist added.
So where are flippers earning the highest returns these days? Attom says that lower cost states like Pennsylvania, Louisiana and Ohio seem offer the most attractive returns while cities in the flipping paradise of California are only managing to generate lackluster mid-20% returns on their investment.
Homes flipped in Pennsylvania yielded the highest average gross flipping ROI nationwide in Q2 2017 (103.1 percent), followed by Louisiana (100.0 percent), Ohio (88.9 percent), New Jersey (81.7 percent), and the District of Columbia (81.2 percent).
Among 101 metropolitan statistical areas analyzed in the report, those with the highest average gross flipping ROI were Pittsburgh, Pennsylvania (146.6 percent); Baton Rouge, Louisiana (120.3 percent); Philadelphia, Pennsylvania (114.0 percent); Harrisburg, Pennsylvania (103.3 percent); and Cleveland, Ohio (101.8 percent).
Metro areas with the lowest average gross flipping returns in Q2 2017 were Honolulu, Hawaii (17.8 percent); Boise, Idaho (23.5 percent); Austin, Texas (26.0 percent); San Jose, California (27.0 percent); and San Francisco, California (27.1 percent).
Of course, capital tends to follow out-sized returns which is presumable why 1 in 4 homes sold in the following zip codes are now flowing through speculative flippers.
Meanwhile, here are the other markets around the country where flipping is also heating up.
Counter to the national trend, 54 metropolitan statistical areas — 53 percent of the 101 metro areas analyzed in the report — posted a year-over-year increase in home flipping rates in the second quarter, led by Baton Rouge, Louisiana (up 72 percent); Rochester, New York (up 39 percent); Daphne-Fairhope-Foley, Alabama (up 29 percent); New York (up 24 percent); and Modesto, California (up 24 percent).
Other markets where the Q2 2017 home flipping rate increased at least 10 percent from a year ago included Birmingham, Alabama (up 22 percent); Grand Rapids, Michigan (up 20 percent); Dallas-Fort Worth, Texas (up 13 percent); Oklahoma City, Oklahoma (up 12 percent); St. Louis (up 11 percent); Providence, Rhode Island (up 11 percent); and Cincinnati, Ohio (up 10 percent).
All that said, flipping isn’t always easy in every market. Take Denver, for example, where real estate investor Paul Schemmel said it became so difficult to flip houses at a profit that he had to ‘evolve’ his business strategy…so now he just pays full price for existing homes, bulldozes them and builds brand new mcmansions. Genius plan, if we understand it correctly.
“I’ve constantly evolved to make money in the Denver market,” said Schemmel, who said he has flipped hundreds of homes since 2008 but was finding it harder to compete in the conventional home flipping arena. “Why don’t I just buy at full price, scrape the lot and build a new house. … And then I started making money again. I don’t even rehab any more. I demolish and I build a new home. … I can pay full price for a property, but my competition cannot.”
Of course, you should not worry at all that flipped homes are increasingly being financed with mortgages…
More than 35 percent of homes flipped in Q2 2017 were purchased by the flipper with financing, up from 33.2 percent in the previous quarter and up from 32.3 percent a year ago to the highest level since Q3 2008 — a nearly nine-year high.
The estimated total dollar volume of financing for homes flipped in the second quarter was $4.4 billion, up from $3.9 billion in the previous quarter and up from $3.4 billion a year ago to the highest level since Q3 2007 — a nearly 10-year high.
Among 101 metropolitan statistical areas analyzed in the report, those with the highest percentage of Q2 2017 home flips purchased with financing by the flipper were Colorado Springs, Colorado (68.4 percent); Denver, Colorado (56.1 percent); Boston, Massachusetts (53.3 percent); Providence, Rhode Island (51.7 percent); and San Diego, California (49.0 percent).
“Across California the gross dollar profits available for property flips remains one of the highest in the country; however low market inventories, increases in home prices, and decreasing home affordability have decreased the number of opportunities available to secure prospective properties to invest,” said Michael Mahon, president at First Team Real Estate, covering the Southern California housing market.
….we’re sure that flippers and their banks fully learned their lesson back in 2008.