“Canary In The Coal Mine” – The Returns On House Flipping Crash To A Six-Year Low

The house flipping industry has gone bust, and many investors are left holding the bag. Here are the details…

from Zero Hedge

Real-estate speculation has long been a characteristic of booming housing markets, and in this current cycle of artificially suppressed rates, investors have been furiously flipping homes which peaked in the first few months of 2018. The number of companies flipping houses also hit a decade high, as HGTV programming and house flipping seminars across the country suckered in the broad base of the American people.

Now the house flipping industry has gone bust, and many investors are left holding the bag. Flipping dropped for the third consecutive quarter, due to mortgage rate increases, according to Attom Data Solutions. At the same time, the average return on investment crashed to a six-year low.

“A total of 45,901 single-family homes and condos were flipped in 3Q18, signaling a 12% drop from a year ago to a 3.5-year low from the first quarter of 2015. Houses flipped sold for an average of $63,000 more than what the home flipper purchased them for, down from the all-time high of $68,000 achieved in the first quarter and from $65,000 a year ago,” said Attom Data Solutions.

The gross flipping profit in 3Q18 was about 42.6% ROI, the lowest level seen since the first quarter of 2012. Despite the recent market plateau, some flippers are finding it unprofitable in the current market environment.

With home price appreciation stalling, many flippers have started to notice margin compression and to make matters worse, President Trump’s tariffs have made the cost of materials just that more expensive.

The amount of flipped homes purchased with financing held steady at 38.8% in the third quarter, down from 39.2% a year ago and 40.7% the previous quarter.

“Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,” Daren Blomquist, senior vice president at Attom, said in a press release.

We’ve now seen three consecutive quarters with year-over-year decreases in home flips. The last time that happened was in 2014 following the mortgage rate jump in the second half of 2013, but it’s still far from the 11 consecutive quarters with year-over-year decreases in home flips extending from 2Q 2006 through 4Q 2008 and leading up to the last housing crash,” he said.

The total houses flipped in the third quarter represented 5% of all single-family homes and condos sold in the quarter – the lowest reading in more than two years. The flipping rate declined from 5.1% a year ago and 5.2% from the previous quarter.

It seems the popularity of “how to flip a house” in Google Search across the US peaked in 2017 and has since stalled.