House flipping nationally has been stable in the last year; the current rate of around 5 percent is in line with the rate of pre-bubble housing years. In fact, the current rate is well below the 2006 flip rate of 8.6 percent.
According to a report titled “Big Flippers and High Rollers” from Trulia Chief Economist Ralph McLaughlin released on Thursday, there are some hot spots—particularly in Las Vegas, where flipping is making a comeback and nearing historical highs, and in many Florida markets.
In some markets, the flipping rate has declined substantially because the rate of home price appreciation has made the cost of a home too expensive for investors to make that initial buy and take the risk, according to McLaughlin. Markets such as Los Angeles, San Diego, and Denver were reported to have lower flip rates because the completed, flipped house ended up in a higher price tier and therefore took longer to sell.
“House flipping is a unique housing market metric for two reasons,” McLaughlin said. “First, it is a speculative undertaking where investors are betting on turning a profit, and has historically occurred at high rates just before a market peaks. Second, flipping usually entails removing a home from a particular price point in the market and moving it to a higher price point through improvement. That movement creates competition for homebuyers who may be looking to build sweat-equity on their own. But flipping activity also provides improvements to the housing stock for buyers who don’t have time or cash to improve a home themselves.”
Trulia found that in the last year, the market with the highest flip rate was Las Vegas, where at 10.4 percent the rate is about 80 percent of its 15-year peak of 13 percent (achieved in Q2 2005). Fresno, California, had the second-highest flip rate at 7.6 percent, and Daytona Beach, Florida, was third with 7.4 percent. Detroit and Louisville were the markets with the lowest flipping rates, both with less than 2.5 percent (Detroit’s was only 1.1 percent).
Las Vegas is not the only market within at least 70 percent of its 15-year peak flipping rate. Baltimore is currently at 75 percent of its peak flipping rate of 9 percent, achieved in Q4 2006, and Richmond, Virginia, is currently up to 70 percent of its peak, achieved in Q2 2006. The flipping rate is highest in these markets, McLaughlin said, because flipping requires 1) a market which is seeing appreciating home prices; 2) a cheap supply of homes which can be bought and flipped, and 3) buyers who are ready to purchase the completed flipped homes.
“The U.S. housing market isn’t flipping out just yet, but there are signs that some areas are approaching their previous flipping points,” McLaughlin said. “While this isn’t of concern in places where flipping activity is low relative to the national average, such as Birmingham there are signs that markets such as Las Vegas may soon reach an historical high level of flipping.”
Click here to view McLaughlin’s full report.