Home Flipping 'Tapering Off' in Many US Markets

Home Flipping 'Tapering Off' in Many US Markets

Residential News » North America Residential News Edition | By WPJ Staff | July 18, 2013 8:56 PM ET

After a surge in activity, home flipping is declining in many of the U.S. markets popular with speculators.

Overall, the number of homes flipped in the first half of the year -- with flipping defined as a home that is purchased and resold within six months - was up 19 percent from a year ago and 74 percent from the first half of 2011, according to data firm RealtyTrac. And the average gross profit on a single family home flip rose to $18,391, a 246 percent increase from the average gross return of $5,321 in the first half of  2012 (and an average loss of $13,206 in 2011), the firm reports.

But RealtyTrac found declining flipping activity in 32 of the 100 markets analyzed, including such flipping hot spots as Las Vegas, Phoenix, Southern California and Atlanta. Recent reports have suggested that most investors are buying to rent, not flip.

"While flipping continues to be profitable in most markets, particularly those where the home price recovery is still nascent and a recent rebound in foreclosure activity allows investors to find distressed inventory at a discount, home flipping is tapering off in markets where fewer of those distressed bargains are available," said Daren Blomquist, vice president at RealtyTrac.

Investors looking to flip typically paid a discount of 5 percent below estimated market value on average, and sold them at a premium of 1 percent above estimated market value on average, the firm reports.

"The opportunity to buy and flip homes in Southern California is diminishing each month, as the price to purchase fixer-uppers continues to increase rapidly," said Rich Cosner, chief executive at Prudential California Realty.

Increasing housing prices -- as well as the skrinking number of foreclosures --  make it difficult for investors to find bargains worth flipping, industry executives say. Gross profit calculations don't take into account the costs of repairs, upgrades, cleanup and carrying charges, Mr. Cosner notes.

In some areas home prices have increased so much that there is little or no profit available to flip it," Mr. Cosner said.

But the number of flips is still increasing in more than two-thirds of the markets tracked by RealtyTrac, including New York, Washington, D.C., Chicago and several Florida metros.

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