Home flipping across the U.S. has fallen back from a six-year high as increased demand for investment properties and low supply made them harder to come by.
Around 45,718 single-family home and condo sales in the U.S. were flips—where a home is purchased, renovated and sold quickly to turn a profit—in the third quarter of 2016, down from a six-year high of 53,892 in the previous three months and 49,305 a year earlier, according to analytics firm ATTOM.
It defines a home flip as a property that is sold at arm’s length for the second time within a 12-month period and they accounted for 5.1% of all single-family and condo sales, lower than the 5.6% recorded in the previous quarter and unchanged from the same period in 2015.
Home flipping hit a peak of 9% of all sales in 2006, but almost halved in the midst of the financial crisis, ATTOM’s senior vice president Daren Blomquist said. It has started to recover over the past couple of years (albeit with a pull-back last quarter) as investors regained confidence, and on the back of the emergence of a number of specialist finance companies offering loans to these type of investors.
This, however, has meant more investors coming into the market, which has, in turn, limited the number of homes available to buy in key markets.
“While the macro trends of low housing inventory and rising home prices are favorable for flippers, they are also a double-edged sword, attracting more competition and reducing the availability of deals,” said Mr. Blomquist.
He told Mansion Global that there is now anecdotal evidence that limited opportunities in the more traditional home flipping markets has led some investors to move into the luxury sector, which he defines as $1 million-plus.
“One person in particular told me told me that he was moving out of Inland Empire in California and into the more expensive Newport Beach market where he was looking at $1 million to $2 million-plus homes,” Mr. Blomquist said.
“While there are fewer properties [in the luxury market], there is less competition, which means more opportunities to make a profit,” he said. “In the luxury market, each flip can generate a bigger profit for the investor.”
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