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Why home-flipping numbers could signal a problem for the housing market

·Segment Producer/Booker
In this article:
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Americans are back in the home-flipping game — it's just not as profitable as it used to be.

The latest report from ATTOM Data Solutions’ Q1 2019 U.S. Home Flipping Report reveals that while house-flipping rates spiked to a nine-year high in the first quarter of 2019 (7.2% of all home sales during the quarter) — the gross profits and return on investment are continuing to worsen. In the first quarter, the average gross flipping profit was $60,000, down from $68,000 in Q1 2018.

“We've tracked flips for multiple years now,” Todd Tetta, ATTOM Data Solutions’ chief product officer, said on Yahoo Finance’s The Ticker. “And what we're seeing in the last year is some of the flipping stats are down across the board. So if you look at absolute number of flips, the dollar profit per home on an average basis, and even just the ROI — the percent of profit, if you will, on $1 invested — that's down.”

Tetta noted that his firms see these flips “as a leading indicator in many ways, to the market,” suggesting that the trend does not bode well for the overall market.

Home Flipping Profit Trends, 2009-2019
Home Flipping Profit Trends, 2009-2019. (Source: Yahoo Finance)

‘The deals just simply aren't available for flippers’

Data shows that investor engagement in home flipping has also declined 11% over the past year, and Tetta noted that low profits may be why some investors have decided to sit on the sidelines.

Tetta added that “the deals just simply aren't available for flippers to go find. So it's extremely difficult to find opportunities. Those prices have gone up and material costs have gone up, and it's really turned the business model a little bit on its head.”

ATTOM Data Solutions found that 16 states in the Northeast saw a home-flipping slowdown, while areas in the the Midwest and South are proving to be strong performers in the home-flipping space. Metro areas with a population of at least 1 million and a home flipping rate increasing in the double digits were San Antonio, Texas (up 47%); Houston, Texas (up 41%); Atlanta, Georgia (up 38%).

“Lower-priced homes across the nation tend to be extremely profitable from an ROI standpoint,” Tetta also added.

One bright spot is the renewed interest that so-called ‘iBuyers,” have taken in the flipping market. Companies like Offerpad, Knock, and Opendoor are streamlining the home-flipping and home-selling experience in hopes of making the move-out and move-in process as seamless as possible. Zillow (Z) also recently announced it is investing more money into its home-buying and flipping operations.

Sarah Smith is a Segment Producer/Booker at Yahoo Finance. Follow her on Twitter: @sarahasmith

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