House flipping is on the rise, according to a report from CoreLogic. Data from CoreLogic indicates the home-flipping rate has increased year-over-year for 12 consecutive quarters, and on a seasonally adjusted basis is now at the highest level since CoreLogic started keeping track in 2002, at 10.9% of home sales as of Q4 2018.
A new player in the home-flipping game is the “iBuyer.” According to Sean Black, CEO & Co-Founder of Knock.com, writing for Forbes, iBuyers are companies who buy homes through instant offers, often spending only a few thousand on repairs and reselling for smaller profit than traditional home flippers.
These iBuyers companies are expanding, selling more and more homes each quarter, but according to Zillow, who is expanding their own iBuyer segment, margins on these instant offer are “razor thin.” Meanwhile, returns for traditional flippers has risen.
“In addition to flipping rates, we also estimate economic returns to flipping,” said CoreLogic Deputy Chief Economist Ralph McLaughlin. According to McLaughlin, returns for flippers have risen significantly, up to a median of around 40% after 2007. Additionally, he notes that flippers are shifting away from price speculation and toward adding value to properties.
Returns are particularly high for older housing. CoreLogic found that returns are highest in Detroit, Philadelphia, and Pittsburgh with returns of 95.9%, 92.8%, and 75%, respectively, while areas with newer housing stock, such as Colorado, Arkansas, Missouri, Texas, Arizona, and Tennessee, Florida, and Nevada, have seen lower returns ranging between 8.4-10.8%.
Still, iBuyers such as Zillow’s “Homes” have seen significant growth, even if they are not yet at the level of traditional flippers. Zillow's "Homes" segment grew from $11 million to over $40 million from Q3 to Q4 2018, representing a 400% growth, with gross profit increasing from $700,000 in Q3 2018 and $2 million in Q4 2018, a small but significant margin, as Zillow admits that the actual goal is to sell mortgages.