The continual rise in the prices of homes over the past few years has been accompanied by an increase in the number of homes that are flipped for a profit. Real estate research firm Trulia released data showing the number of homes flipped in respect to the total number of homes sold is the highest it has been since 2006.
Trulia classifies flipped homes as those that were sold twice within a year. As such, flipped homes made up 6.1 percent of all home sales in 2016, slightly below the previous high of 7.3 percent encountered in 2006.
“We think the recent rise in flipping in the U.S. is reflective of investors improving the housing stock, which is good news for those looking to move into a turn-key home in a low-inventory environment,” stated Trulia Chief Economist Ralph McLaughlin. “On the other hand, homebuyers looking to add sweat equity to a home are going to be increasingly challenged by new competition in the market from flipper-investors.”
Flipped homes accounted for 10.5 percent of the total amount of all homes sold in Las Vegas, Nevada, which marks it as the region with the highest percentage of homes being flipping relative to the total number of homes sold in the area. Detroit Michigan had the largest year-over-year improvement for house flipping activities, rising from 1.2 percent to 6.0 percent in 2016.
Rising home prices give investors a better chance of turning a profit even if the costs of flipping the home surpasses the expected budget. Trulia’s data shows a considerable correlation between the number of homes which are flipped for a profit and the overall increase in home prices.
There are concerns that the rise in the amount of homes flipped too closely resembles the respective increase seen leading up to the 2008 financial crisis. However, as Trulia notes, the concerns are only valid if the investors who are flipping the homes are not actually improving the homes before selling them. In other words, it is a bad sign if investors are simply purchasing homes, waiting for home prices to rise, and then selling those homes at a profit without adding any real value.
However, Trulia notes that investors filed permits to begin improvements on 11.6 percent of the homes that were flipped in Las Vegas. This indicates that at least some investors who flipped homes are motivated by a desire to improve the household instead of simply waiting to sell them at higher prices. As the report keenly notes towards the end of the article, “there’s not much reason to flip out over the recent uptick in house flipping.”
To view Trulia’s full report, click here.