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Ups and Downs in Home Flips

Home flipping has never been an undertaking for the faint-hearted, says Lance Lambert, Data Journalist at Realtor.com [1]. In its latest report [2] released Monday, focusing on the ups and downs in home flipping, Realtor.com revealed that the business of flipping homes is getting riskier again on account of the current slowdown. According to Lambert, this trend is “raising stress levels and blood pressures anew,” with the decline in prices in a few cities.

The risk of rapidly falling prices is likely to affect flippers as they would end up losing value on their homes, even as they work to improve them, the report indicated. It also stated that figuring out areas where home U.S. home flipping is up—and down—the most, is not only significant to would-be flippers but also is a critical aspect of predicting the direction of key markets.

The report found that larger coastal cities recorded the biggest drop in flips wherein prices are slowing down and the costs far outpaced what buyers could afford. A spike in flips was reflected in smaller places and more affordable cities with an influx of new residents, the report stated. Las Vegas an Phoenix—some of the areas where this sort of speculative real estate investment contributed most to the last bubble, is booming again, according to the report.

Home-flipping profits have gradually shrunk, from returns of 42 percent over purchase prices down to 38 percent over the past four years—a drop that excludes renovation and remodeling cost which can surpass 20 percent of the purchase price on the rise in many areas. Realtor’s home sales analysis points out the growth of the overall number of flips by 3.5 percent in September compared with a year earlier.

Raleigh, North Carolina topped the list of metros where flipping is up the most with a median home price at $340,000 and a recorded increase in home flips at 63.4 percent. Purchase and sales reflected a difference of 32 percent. This was followed by Charlotte, North Carolina; Orlando, Florida; Pheonix, Arizona, and Las Vegas, Nevada.

Metros such as Columbus, Ohio; Cape Coral, Florida; Virginia Beach, Virginia; Riverside, California, and Portland, Oregon featured in the top five metros with the lowest rate of flipping respectively.

The report is based on information derived from home sales in the 200 largest metropolitan areas for July, August, and September 2018 and compared them with the same period a year prior. Home flip, per the report, is any type of home bought and resold within a three- to 12-month period.