This certainly doesn't bode well for US home sales.
According to a survey by Attom Data Solutions year-end home flipping report, the number of homes bought and sold for a quick profit declined last year as the number of homes flipped for profit declined by 4% from 2017 as profits from housing-market speculation fell to their lowest level in seven years. By Attom's calculations, flipped homes comprised 5.6% of all home sales, which was unchanged from 2017.
The 207,957 homes flipped in 2018 represented 5.6 percent of all single-family home and condo sales during the year, stagnant from 5.6 percent of all sales in 2017 but up from 5.1 percent of all sales back in 2008.
A total of 146,020 entities (individuals and institutions) flipped homes in 2018, down .4 percent from the 146,623 entities that flipped in 2017 but up 63.1 percent from 89,539 entities that flipped 10-years ago.
"With mortgage rates remaining strong and people staying in their homes longer, we have started to see a bit of a flipping rate slowdown," said Todd Teta, chief product officer at ATTOM Data Solutions.
"However, this isn’t to say home flipping is going away. The market is still ripe with investors flipping and bargains still await, especially in the lowest-priced areas of the country, where levels of financial distress remain highest."
Meanwhile, in a sign that millennials' inability to afford homes could be weighing on the speculative market, the share of homes flipped to FHA-loan borrows has declined to an 11-year low.
Of the homes flipped in 2018, 13.8 percent were sold to FHA borrowers - likely first-time homebuyers - down from 17 percent in 2017 to an 11-year low.
Among 53 metro areas analyzed in the report with at least 1 million people, those with the smallest share of completed flips sold to FHA buyers in 2018 were San Jose, California (1.3 percent); Raleigh, North Carolina (4.3 percent); San Francisco, California (6.0 percent); Memphis, Tennessee (6.5 percent); and San Diego, California (7.2 percent).
Among the 53 metro areas analyzed in the report with at least 1 million people, those with the highest share of completed flips sold to all-cash buyers - often other real estate investors - in 2018 were Detroit, Michigan (48.8 percent); Birmingham, Alabama (42.4 percent); Jacksonville, Florida (39.8 percent); Miami, Florida (38.3 percent); and Buffalo, New York (38.0 percent).
In another factor that might dent the ardor of potential home flippers, profits from flipped-home sales declined to the lowest level in four years.
Completed home flips in 2018 yielded an average gross profit of $65,000 (difference between median purchase price and median flipped sale price), down 3 percent from an average gross flipping profit of $66,900 in 2017.
The average gross flipping profit of $65,000 in 2018 represented an average 44.8 percent return on investment (percentage of original purchase price), down from 50.3 percent in 2017 and down from an all-time high average gross flipping ROI of 51.0 percent in 2016.
Among 176 metro areas with a population of at least 200,000 and at least 100 home flips in 2018, those with the highest average gross flipping ROI were Pittsburgh, Pennsylvania (144.2 percent); Scranton, Pennsylvania (131.7 percent); Atlantic City, New Jersey (113.2 percent); Cleveland, Ohio (112.1 percent); and Erie, Pennsylvania (109.3 percent).
Along with Pittsburgh and Cleveland, other major metro areas with at least 1 million people and gross flipping ROI of at least 80 percent were Philadelphia (109.0 percent); Baltimore (103.5 percent); Buffalo (96.2 percent); Memphis (86.5 percent); and Cincinnati (84.2 percent).
The cities that experienced the biggest increase in home-flipping activity were Tucson, Raleigh, Columbus and Hartford.
Among metro areas with at least 1 million people, those with the biggest annual increase in home flipping rate in 2018 were Boston, Massachusetts (up 33.3 percent); Tucson, Arizona (up 27.3 percent); Raleigh, North Carolina (up 24.5 percent); Columbus, Ohio (up 13.1 percent); and Hartford, Connecticut (up 12.8 percent).
Other major markets in the top 10 for biggest increase in home flipping rate in 2018 were New York, New York; Charlotte, North Carolina; Grand Rapids, Michigan, Pittsburgh, Pennsylvania and Milwaukee, Wisconsin.
While 20 out of the 53 metro areas with at least 1 million people saw an increase in the home flipping rate in 2018, those that saw a decrease, included Kansas City, Missouri (down 25.2 percent); Buffalo, New York (down 17.5 percent); Indianapolis, Indiana (down 16.3 percent); Seattle, Washington (down 15.9 percent) and Salt Lake City, Utah (down 14.0 percent).
Here's a rundown of takeaways from the data set:
- The 47,071 home flips in Q4 2018 were completed by 37,379 investors, a ratio of 1.26 flips per investor.
- The share of homes flipped in Q4 2018 that were purchased by the flipper with financing represented 36.4 percent of all homes flipped in the quarter, down from 39.1 percent in the previous quarter and down from 39.5 percent in Q4 2017, to a two-year low.
- The average gross flipping profit of home flips in Q4 2018 was $62,000, which represented an average 41.9 percent return on investment (percentage of original purchase price), down from 42.9 percent last quarter and down from 49.6 percent in Q4 2017, to a seven-year low.
- The average square footage of homes flipped in Q4 2018 was 1,408, down from 1,412 in the previous quarter to the smallest average square footage on record for the report, going back to Q1 2005.
- Homes flips completed in Q4 2018 took an average of 175 days, down from 177 days in the previous quarter and down from 178 days in Q4 2017.