The average profit on homes flipped in the third quarter dropped to its lowest level in more than two years, according to ATTOM Data Solutions’ Q3 2017 U.S. Home Flipping Report.
The report found that homes flipped in the third quarter produced an average gross flipping profit of $66,448, an average 47.7 percent return on investment ROI, but down slightly from 48.7 percent ROI in the previous quarter and down from 51.2 percent year-over-year. The third-quarter flipping profit was the lowest average gross flipping ROI since Q2 2015, according to the report.
“Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins,” ATTOM Senior Vice President Daren Blomquist said in a release. “A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip.”
The report said 48,685 single family homes and condos were flipped in the third quarter, a home flipping rate of 5.1 percent — down from 5.6 percent in the previous quarter and unchanged from a year ago.
Through the third quarter, 153,727 single family homes and condos were flipped, practically unchanged from the 153,854 flipped through the first three quarters of 2016, ATTOM found.
The quarterly home flipping rate increased in 47 percent of the metropolitan areas analyzed in the report. The largest increases were found in Baton Rouge, La. (up 140 percent); Winston-Salem, N.C. (up 58 percent); Salem, Ore. (up 51 percent); Indianapolis (up 51 percent); and Buffalo, N.Y. (up 47 percent).
In addition to Indianapolis and Buffalo, N.Y., the metropolitan areas that posted year-over-year increases in home flipping rates of at least 10 percent were Louisville, Ky. (up 22 percent); San Antonio (up 22 percent); New York (up 21 percent); Cleveland (up 17 percent); Birmingham, Ala. (up 17 percent); Charlotte, N.C. (up 15 percent); Dallas-Fort Worth (up 14 percent); Rochester, N.Y. (up 13 percent); Detroit (up 12 percent); Hartford, Conn. (up 11 percent); and Memphis, Tenn. (up 10 percent).
The report said the home flipping rate decreased year-over-year in 49 metropolitan areas. Those areas included Los Angeles (down 6 percent); Washington, D.C. (down 6 percent); Miami (down 15 percent); Boston (down 5 percent); and San Francisco (down 2 percent)
Other areas where flipping rates decreased year-over-year were Seattle (down 8 percent); Minneapolis-St. Paul (down 18 percent); Tampa-St. Petersburg, Fla. (down 9 percent); Baltimore (down 2 percent); and Denver (down 2 percent).
“Although the number of flips in the Seattle market dropped back to levels not seen since early 2016, they are still well above the levels seen before the recession. I anticipate that the number of flips will continue to fall as home price growth eats into profits, which have been on the decline since 2013,” Windermer Real Estate Chief Economist Matthew Gardner said.
“The Seattle region housing market remains very tight in terms of inventory and this has put substantial upward pressure on prices. Flippers can function to exacerbate this issue, so the sooner we see the number of flips drop back to pre-recession levels, the better,” Gardner added.
The report said the metropolitan areas with the highest flipping returns in the third quarter were Pittsburgh (147.7 percent); Baton Rouge, La. (122.2 percent); Philadelphia (114.0 percent); Baltimore (101.5 percent); and Cleveland (98.6 percent).
The metropolitan areas with the lowest flipping returns in the third quarter were Austin, Texas (18.7 percent); Reno, Nev. (22.3 percent); Dallas-Fort Worth (22.7 percent); Kansas City (24 percent); and Salt Lake City (24.9 percent).