Sound Familiar? Home Flipping In The US Hits 11-Year High

In a disturbing echo of the runup to the housing crisis, a recent study has revealed that the practice of flipping homes in the US is back in vogue - with the number of houses flipped rising to its highest level in 11 years.

If that doesn't spook residential real-estate speculators, we're not sure what would. Hundreds of thousands of American homebuyers have apparently forgotten how, 11 years ago, a Mexican immigrant working as a strawberry picker in Bakersfield, California, making $14,000 per year, was lent every single penny he needed to purchase a $720,000 home.  And as crazy as that might sound, stories such as that were alarmingly common during the period before the 2008 housing crash (though, of course, few, if any, alarm bells actually went off).

Flips

Last year, we noted that investors had started flipping homes as if it were 2006 all over again, with the number of homes flipped accounting for 6.1% of all US home sales. Back in 2006, the figure rose to a record 7.3%.

What's worse, we pointed out that the cities with the highest rates of home-flipping were essentially the same cities that were the hardest hit by the crisis.

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Now, data provided by ATTOM Data Solutions - which maintains the largest database of US home sales - showed the home flipping reached a new peak, with 207,088 single family homes and condos flipped in 2017, up 1% from the 204,167 homes flipped during 2016. Again, that's the highest rate since 2006. That's 5.9% of all single family home sales.

Meanwhile, a total of 138,410 entities (which includes both individuals, who typically buy and sell under the cover of an LLC, and institutions) flipped homes in 2017, up 4% from the 133,407 entities that flipped in 2016 to the highest level since 2007. That's a 10-year high.

However, an executive at ATTOM Data Solutions assured readers that home-flipping today is "built on a more fundamentally sound foundation than the flipping frenzy that we witnessed a little more than a decade ago.

Home flip lending volume up 27 percent to 10-year high

The total dollar volume of financed home flip purchases was $16.1 billion for homes flipped in 2017, up 27% from $12.7 billion in 2016 to the highest level since 2007 — a 10-year high.

Meanwhile, the total dollar volume of financed home flip purchases was $16.1 billion for homes flipped in 2017, up 27% from $12.7 billion in 2016 to the highest level since 2007 — a 10-year high.

Average home flipping returns pull back from all-time high

Sales of flipped homes in 2017 yielded an average gross profit of $68,143 (the difference between median purchase price and median flipped sale price) - a 5% increase from an average gross flipping profit of $64,900 in 2016 to a new all-time high for as far back as data is available (2000).

That profit represented a nearly 50% ROI, which is actually down from an all-time gross ROI of 51.9% ROI in 2016.

Among 52 metro areas analyzed in the report with at least 1 million people, those with the highest home flipping rate in 2017 were Memphis, Tennessee (12.8%); Las Vegas, Nevada (9.1%); Tampa-St. Petersburg, Florida (9%); Birmingham, Alabama (8.6%); and Phoenix, Arizona (8.5%). While the cities with the biggest increase in home flipping rates were Buffalo, New York-Northern New Jersey, Dallas-Fort Worth, Louisville Kentucky.

Homes on average took 182 days to flip in the US last year, tied with 2016.

With US home prices having finally surpassed their pre-crisis peak, and, in 80% of US cities, valuations are growing faster than wages...

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And as credit card, student loan and auto debt swell to record highs, we imagine millennials - who are perhaps the most indebted generation in recent history - will swiftly pick up the slack and keep pushing these prices higher...

Comments

FireBrander GassedUpOldMan Wed, 03/14/2018 - 19:08 Permalink

2018 is not 2006.

Example:

In 2006, you bought a new house for $200k, sat on it for 4 months, then sold it for $225k

In 2018, you buy a trashed house for $150k, spend $50k putting it back together, list it for $225k and it sells in < 4 months.

2006 required quickly appreciating prices; 2018 requires buyers at current market prices...big difference..also, banks are not handing out money like it was printed from thin air...a ton of cash deals out there with no banks involved whatsoever...

In reply to by GassedUpOldMan

erkme73 Shemp 4 Victory Wed, 03/14/2018 - 21:24 Permalink

I put my FL home (Tampa Bay) on the market 6 days ago. According to Zillow, my listing was seeing 500+ visits per day. At the end of four days, it had been shown over 40 times, and I had 11 solid offers.

On the fifth day, I accepted the best offer - which was about 5% over asking price, no concessions, and closing by the end of this month.

I honestly worried that I had missed the market, given the recent decline in mortgage applications and rise in rates. But the demand is crazy. Perhaps I under-priced the house - though according to the Realtor, my asking price was higher than the highest sale in the last 6 months in that area. I would have been thrilled to come in at 10% under asking price - so to let it go at 5% over, is just gravy.

FWIW, 10 of the 11 investors had Latino names... Hernandez, Martinez, Fernandez, Chavez... All of them FHA, and therefore likely first time buyers. Makes sense, as the last time I was at my mailbox at that house, all I could hear around me was Spanish.

Proceeds from this sale will allow my family to be 100% debt free on everything - including our new full-time bugout house in middle-TN.

Fingers crossed that closing gets here on time, and without hiccup.

In reply to by Shemp 4 Victory

Antifaschistische Bill of Rights Wed, 03/14/2018 - 18:53 Permalink

we just fired a dude from work....an Indian guy (India type, not Cherokee type)...these clowns form little unions with other Indian dude to flip houses.  He could stay off the phone working his "deals" so we canned him.   ....and anyone buying a house flipped by this dude and his buddies are getting ripped...these guys don't give a shit about quality of work.

 

In reply to by Bill of Rights

FireBrander Antifaschistische Wed, 03/14/2018 - 19:17 Permalink

these guys don't give a shit about quality of work.

A contractor friend of mine refurbed a house for an Indian family...they picked out EVERYTHING that went into the remodel...and it was ALL bottom of the line cheap shit. He, politely, informed them that what they bought was shit, but they insisted he install it...well, he did...and a year later they sued him for "shoddy workmanship"...went to court, he proved they picked out and paid for everything installed..he won easily.

They even wanted him to install non-functioning windows in the bedrooms to save a few bucks on what were already cheap "house brand" replacement windows...he absolutely refused that one; not going to play a part in people burning to death...

PS> All races do this type of stupid shit.

In reply to by Antifaschistische

OCnStiggs FireBrander Thu, 03/15/2018 - 02:43 Permalink

No kidding...

House down the street was remodeled by a builder/real estate consortium. All the upgrades were builder grade basic. Painted over everything, included dented garage doors. They even painted the tile roof. Listed it for $1.2 mil. Been FOR SALE for nearly two years. Hope it takes another two years and their carrying costs eat them to death. They screwed up what could have been a decent home.

Flippers do not understand million dollar property buyers are fickle and can smell quality.

In reply to by FireBrander

Sonny Brakes Wed, 03/14/2018 - 19:01 Permalink

What does it cost in materials just to build a house in this economy? How long does a house last if it isn't upgraded on an annual basis? I've heard it said that owning is better than renting, and it probably is, but in my opinion, owning a house is like having a child; it's rewarding if you can raise it to adulthood, but that house, it always needs something. If you're lucky enough to be able to earn a living close to home, great, but if you've got to move for work, you're stuck.

CRM114 Sonny Brakes Wed, 03/14/2018 - 19:11 Permalink

See my comment below. The basic cost in materials for a finished 4 bed, 2 1/2 bath house, 2,000 sq ft, with garage, is $120,000 (that's rural). This will get you a house that will last. I know, because I've done it recently. I did zero maintenance in 7 years. Zero. The basic principle is to do each job, like insulation or subfloor glueing/screwing carefully (contractors do them fast), and make all structural elements 1 grade higher than code minimum (e.g. if code permits 2x8 floor joists, use 2x10). This will cost you about 5% more in materials than Code minimum. You will not get this back on resale, but you will get a quick sale. And you end up with zero maintenance, which is priceless.

In reply to by Sonny Brakes

Antifaschistische Sonny Brakes Wed, 03/14/2018 - 20:19 Permalink

The problem in Houston, is that if you're a 20 something look for a home to raise your kids in for the next 25 years....how would you know if that neighborhood isn't going to turn into a real "hood" in the next 20 years.   The "hood" is spreading through Houston like the death angel fog in that old Moses movie.   They have heat maps of Houston showing the places where most inhabitants speak english ONLY as a "second language".  Which really means over 1/2 of them don't even speak english.   It is damn sad looking at how that map has changed over the last 40 years.  It covers about 50% of Houston now.

But..hey, I appreciate the liberal do-gooders in Vermont offering their opinions on immigration when they've never even seen one.(an immigrant that is)

In reply to by Sonny Brakes

CRM114 Wed, 03/14/2018 - 19:04 Permalink

The deep, underlying problem is building regulations, and the elimination of the owner/builder, which is their purpose. Not only are 90% of the regulations unnecessary, but the regs themselves are at least 25 years behind building science (and thus innovation is stifled) but also demonstrably and dangerously wrong in some areas. Furthermore, their implementation and self-regulation is appalling. The rise in construction insurance requirements is an admission that building regulation does not work.

If you design and build your house from the booklets they used to issue in the 1960s, you get a good house. I have done this. I added extra insulation based on the latest research from the building research institutes, which is of course illegal under current regs. My house had 40% less energy consumption than the average of my neighbours, who all had 'regulation' homes. It needed zero maintenance in 7 years, and furthermore the qualified building inspector at sale time found zero faults.

Building regs are another large corporation profit scheme, with the payoff being job protection for administrators.

Consuelo CRM114 Wed, 03/14/2018 - 19:23 Permalink

+1 for all of that, but especially the last sentence.

 

The 'certification' and regulation industry is a $YUGE money maker, because there's nothing like getting in between a transaction and pulling off a complete sham in the name of 'safety', 'children', 'qualifications', etc.   And people buy into it...

In reply to by CRM114

Dougs Decks CRM114 Wed, 03/14/2018 - 21:16 Permalink

Most of those Building Inspectors are there just trying to justify their own existence,,, And they can be real assholes in the process,,, I was doing a small kitchen for a guy that does flip some homes, but this house his son was going to live in,,, I had the garage door open as I was prepping the cabinets to install, and an inspector stopped by and asked what I was doing,,, Told him I was just replacing the cabinets, and he asked me where the permit was,,, You never needed a permit unless you were changing the plumbing or electric,,, He told me to stop work until the owners got a permit, which could take 2 weeks, and sure enough that asshole took 2 weeks,,, Thank god I had other work I could do during that time,,, Now I have to be careful to keep everything I do as hidden as possible,,, And this is just a small example of how bad the permitting people can be,,,

In reply to by CRM114

devo Wed, 03/14/2018 - 19:14 Permalink

Housing is the #1 drag on the economy. Can't buy shit if 70% of income goes to a house. Nice work, The FED. Simple math says this has a limit that we're nearing.

tion Wed, 03/14/2018 - 19:19 Permalink

I wonder if this is 90’s kid Tyler and if he has ever owned a home. 

You can’t take gross profit as difference between buy/sell, fail to account for repair costs, and extrapolate that into 50% ROI. That’s asking for trouble.

 

I am getting ready to start a rehab in a couple weeks, more of a slow and steady that I could be content to live in until I die. Or maybe someday I will swank out the barn into my own junkyard dog house for my future old age and have the kid use the main house to shelter my hopefully numerous future grand babies.

 

There are a lot of areas in flyover with very inexpensive houses. In some cases involving acreage, after you take the value of the land into consideration, the cost to drill a well, and the cost to put in a septic system, the house ends up actually being very low cost or practically ‘free’ in some cases. All different conditions out there of course. Doing some updating won’t kill you. Outside of town limits very low taxes too and no water bill, no trash bill.

 

 

CRM114 tion Thu, 03/15/2018 - 03:32 Permalink

Having sold the place I designed and built, I've now just done the exact same as you. Except I got lucky and the septic, well etc had all been replaced recently, so all I have to do is the house and barn rebuild. Which I will do gradually so it doesn't look like any permit work has been done.

Best of luck!

In reply to by tion

Captain Nemo d… Wed, 03/14/2018 - 19:20 Permalink

If the system is unstable and vague at the root, in terms of money and what "rational" is supposed to mean, complexity will lead to strange behavior. Now somebody take 2.5 billion dollars and make Musk feel complete.

besnook Wed, 03/14/2018 - 19:31 Permalink

flipping is better than landlording. cash flow in big chunks with a month worth of hassles that don't involve tenants is a lot more fun.

Dragon HAwk Wed, 03/14/2018 - 22:27 Permalink

If more people could fix and repair older homes  we wouldn't need  flippers to dress it up and move it out. Bought my place as a fixer upper, lived in it while i found the money to upgrade, saving apartment rent the whole time.  nowadays people look at a hammer and  think what is that thing.  so in that respect a  flipper fill a niche.

bamboojay Thu, 03/15/2018 - 09:39 Permalink

In Tampa, I have seen the same homes flipped several times and in my neighborhood. Some of the same ones have been in foreclosure two or three times.