US real estate market seeing less flipping as house prices rise

Fewer real estate investors in the United States are flipping, that is buying a property and then selling it again within six months to make money, the latest index from housing data firm RealtyTrac shows.

There were 32,993 single family home in the third quarter of 2013, down 35% from the second quarter and down 13% from the third quarter of 2012.

The report also shows that real estate investors made an average gross profit of $54,927 on single family home flips in the third quarter. That was up 12% from an average gross return of $48,893 in the third quarter of 2012.

The higher gross profit was driven in part by an increase in high end flips on homes that were sold for $750,000 or more. A total of 968 high end homes nationwide were flipped in the third quarter, down 13% from the previous quarter but up 34% from a year ago.

The data also shows that more than three fourths of all high end flips were in the five markets of New York, Los Angeles, San Francisco, San Jose and San Diego.
Flips on homes priced between $1 million and $2 million increased 42% year on year, while flips on homes priced between $2 million and $5 million increased 350% year on year.

‘Increasing home prices over the past 18 months combined with decreasing foreclosures have created a market less favourable to the high quantity of middle to low end bread and butter flips that we saw late last year and early this year,’ said Daren Blomquist, vice president at RealtyTrac.

‘But the sharp rise in high end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes. With that higher risk also comes the potential for higher reward. The average gross profit on each high-end flip equals more than four times the average gross profit on each flipped home in the lower price ranges,’ he added.

The number of single family homes flipped in the third quarter decreased from the previous quarter and a year ago nationally, but flipping numbers still increased from a year ago in some markets such as Los Angeles up 11%, New York up 14%, Detroit up 13%, Atlanta up 32%, Las Vegas up 9%, Chicago up 28% and Seattle up 23%.

Meanwhile home flipping decreased substantially from a year ago in several former flipping hot spots such as Phoenix with a 37% decrease, Tampa down 47%, Orlando down 28% and Stockton, California, down 37%.

‘We’ve seen a noticeable decrease in the number of flipped homes throughout central Ohio in the third quarter. The decrease is likely due to increasing rental rates and a decrease in the overall supply of REOs being released on the market,’ said Michael Mahon, executive vice president of HER Realtors covering the Cincinnati, Columbus and Dayton, Ohio markets.

According to Sheldon Detrick, chief executive officer of Prudential Detrick Alliance in Oklahoma, flippers have become what he calls holders. ‘As rent and home prices escalate and the number of available REOs continue to decline there are fewer people who are buying homes to flip. Being a house flipper meant buy it, paint it, sell it.  Now it’s turned into buy it, paint it, rent it, and hold it,’ he explained.

Many of the urban flipping hot spots such as Los Angeles, New York and Atlanta have many areas in disrepair with low priced inventory, making flipping an attractive option. Also home price increases coupled with fewer foreclosures are creating a shortage of inventory with enough spread for profitable flipping, according to Doug Clark, star of Spike TV’s Flip Men.

‘The continued slow pace of new home construction has created a gap in the inventory today’s buyers desire. They want more modern homes with the latest features, and the new home builders aren't meeting the demand. Flippers can often incorporate these features and get them into the pipeline very quickly,’ he added.