Big Flippers and High Rollers
By Ralph McLaughlin, Trulia's Chief Economist
Nationally, there has been little change in house flipping in the past year, but Las Vegas is approaching historical highs, and flipping is making a comeback in several Florida markets.
House flipping is a practice that some believe is an indicator of an over-heated housing market. Nationally, it made up a stable of all home sales during the past year, mirroring a steady increase in home prices.
The good news: that flip rate is roughly in line with the non-housing bubble years and well below the 8.6% flip rate of all home sales in 2006. The concern: there are some hot spots. While stable nationally, we’re having déjà vu: flipping is making a comeback in places such as Las Vegas and Miami, which saw high levels of flipping activity during the previous boom.
Moreover, there’s evidence that house flippers may be sitting out in some markets. That’s because rapid price growth in some expensive markets may be making that initial buy too costly for house flippers.
House flipping is a unique housing market metric for two reasons. First, it is a speculative undertaking where investors are betting on turning a profit, and has historically occurred at high rates just before a market peaks. Second, flipping usually entails removing a home from a particular price point in the market and moving it to a higher price point through improvement. That movement creates competition for homebuyers who may be looking to build sweat-equity on their own. But flipping activity also provides improvements to the housing stock for buyers who don’t have time or cash to improve a home themselves.
Flipping reached a peak in 2006, but is it actually on the rise again? We set out to answer that question by looking at all the home sales in the last year from, and found that:
- Nationally, flipping activity has held steady over the past year at around 5% of all home sales, and is down from the peak of 8.6% in the first quarter of 2006;
- Flipping is highest is Las Vegas, where 10.4% of home sales are flips, and is about 80% of its 15-year peak. Flipping is lowest in Detroit at just 1.1%;
- Over the past year, flipping activity has increased most in Miami, growing from 4.7% to 6.4% of all home sales. Other Florida markets have also seen relatively large increases.
Flipping Down, but Not Out
In the third quarter of 2015, flipping activity held steady year-over-year at around 5% of all home sales. This is down from a peak of 8.6% of all home sales in the first quarter of 2006, but up from a low of if the third quarter of 2008. Why has flipping peaked and troughed over the years? Intense home price fluctuation due to the Great Recession.
Selling houses for a gain over a short period generally requires modest price growth at minimum. Even though flippers can add value by improving the quality of a home, rising prices provide a safety net when taking on a project. When prices are rising faster, flippers have greater opportunity to come out ahead even if the project doesn’t go according to plan. Over the past year, price gains have remained relatively stable, and so have flips. This is stark contrast to rising year-over prices from 2003-2006, when flips increased sharply from 5% to nearly 9% of all home sales.
Flipping Most Common in Las Vegas, Least Common in Detroit
Though flipping has remained relatively stable nationally, flipping activity varies significantly across individual markets. Las Vegas, Nev. leads the pack with 10.4% flips, followed by Fresno, Calif. and Daytona Beach, Fla., with 7.6% and 7.3%, respectively. Detroit and Louisville, Ky., have the lowest share of flips at less than 2.5%.
Housing Markets with the Largest and Smallest Share of Flips
Hot Flipping Markets
Cool Flipping Markets
% of Flips, Q3 2015
% of Flips, Q3 2015
In addition, three of the top flipping markets are within at least 70% of their 15-year peak. For example, Las Vegas is now 79% of its peak flipping point of 13%, which occurred back in the second quarter of 2005. Baltimore is at 75% of its peak flipping point of 9% of home sales in the fourth quarter of 2006, and Richmond, Va., is at 70% of peak flipping, which occurred in the second quarter of 2006.
Read the full article here.