Luxury homes aren't the only section of the American housing market that's showing troubling signs of weakness. Increasingly, entrepreneurs who once saw the opportunity to make quick gains by investing in gentrifying markets before offloading their homes at a premium - a practice called 'home flipping' - are also heading for the exits.
Homes that were resold within 12 months after being purchased made up 7.2% of all transactions in the first quarter, the biggest share since the start of 2010.
But while activity surged to new cycle highs, the average return on investment, not including renovations and other expenses, dropped to 39%, an almost eight-year low.
All told, profits slumped to their lowest level in eight years.
Anybody who remembers the heady years ahead of the housing market crash will recall the role that unchecked speculation allowed unqualified investors, hairdressers, strippers and others, to secure adjustable rate 'liar loans' that helped them enter the speculation frenzy.
Speculators are on the housing market’s front lines, where softening price growth, waning demand and longer times to sell can turn quickly into shrinking profits, or even losses. Purchases of previously owned homes fell 4.4% in April, the 14th straight year-over-year decline, according to the National Association of Realtors.
"Investors may be getting out while the getting is good," Todd Teta, chief product officer at Attom Data Solutions, said in the report. "If investors are seeing profit margins drop, they may be acting now and selling before price increases drop even more."
The average gross flipping profit of $60,000 in Q1 2019 translated into an average 38.7% return on investment compared to the original acquisition price, down from a 42.5% average gross flipping ROI in Q4 2018 and down from an average gross flipping ROI of 48.6% in Q1 2018 to the lowest level since Q3 2011, a nearly eight-year low.