While most of the country is enjoying an economic boom including housing which may be buoyed by low interest rates an interesting statistic crossed the wires last week: Home flipping in the U.S. has hit its highest rate since 2010*. The 49,000 homes that were flipped in 2019’s first quarter represented 7.2% of the total volume of sales.
Now before the other shoes drops please remember back to 2010, not even a full decade prior. The country was still in the depths of The Great Recession. Terms such as foreclosure, short sale, jingle-mail and so forth were in the daily vernacular of real estate brokers like myself. And many astute fix and flippers saw opportunity i.e. cheap homes, low-interest loans and potential opportunities once the market righted itself.
Ok, the other shoe: Despite the percentage increasing, the actual number of flipped homes fell by 8%, while the number investing in properties to flip declined by 11%. The median sales price of flipped homes was $215,000. With an average profit of $60,000, down $8,000 from a year earlier.
Now there could be many reasons for the down statistics above including lack of inventory, higher costs for materials and labor and so forth. Yet let’s dive in a little deeper……
*Just over 49,000 single-family homes and condos were flipped in the first quarter of 2019; according to a recent report by real estate data firm Attom Data Solutions.
These homes comprised 7.2% of all home sales nationwide during that time period, representing the highest home-flipping rate since the first quarter of 2010. However do not consider this an indicator that the market is all peaches and cream…..
The number of homes that were flipped was actually down 8% from the previous year to a three-year low. And the number of investors engaging in home flipping has dropped 11% over the past year. Add to this the gross flipping profit was $60,000, down $8,000 from a year earlier to a three-year low. The take-away while home-flipping activity is increasing gross profit and Return on Investment (ROI) is decreasing.
Some brokers who work in this niche of the market are wondering if investors/fix & flippers are watching as their profit margins drop, time on the market increasing i.e. longer time on the market, most costly to hold have decided to sell now with the assumption that demand and thus prices will continue to weaken.
What is interesting as I noted a few weeks ago interest rates are at 18 month lows YET housing activity for which we are in what is historically the most active season is not increasing.
I have three additional comments concerning what I believe will be a soon to be upon us slowing market and one that may actually witness price drops.
First is the cooling of the luxury market across the country. In NYC we have witnessed a glut of luxury condos coming on the market and buyers sitting on their hands. Not only in New York City but also in Miami and throughout the country. Of note the first signs of positive indicators concerning climbing out from The Great Recession was the astute buyers acquiring luxury homes usually for cash that had been severely discounted.
Second is the influx of the iBuyers, the tech firms using algorithms to make instant home offers are proliferating across the country. Zillow in particular, has said it is investing more money into its home-buying and flipping operation, Zillow Offers, which launched last year. Yet here in Denver so far the short-term iBuyers have not been so successful. The following articles from BusinessDen are most insightful:
- Opendoor’s first six months in Denver: 201 homes bought, 79 sold — 21 percent at loss
- Zillow Offers’ first six months in Denver: 139 homes bought, 55 sold
Third is the proliferation of the reduced fee brokerage signs I am witnessing and new entries into the market i.e. Rex Real Estate and others. The proliferation of signs from Redfin, Trelora and others may suggest strength in the market i.e. go the lower-cost option as the market is strong. I see the opposite i.e. as the market weakens and profit margins retreat sellers may opt for a lower-cost brokerage option to increase their already shrinking margins.
As many readers of my blog know we have been looking for out next home as well. In discussion with our financial planner we have decided to put that on hold for the immediate future as prices seem inflated and shorter-term upside seems limited. Yes we are long-term owners and can take advantage of low interest rates. However historically low-interest rates are indicative of a market needing a growth catalyst, thus personally I believe there are better options for our capital concerning the immediate future.
Of note I am not sure if I will be posting on Monday July 1st, 2019, may actually take a few days of personal time off.