As the housing market continues to evolve and grow, the flipping business shifts in strategy to accommodate those changes — numbers that are reflected in the latest report tracking the fix-and-flip industry.
The Q1 2017 U.S. Home Flipping Report from ATTOM Data Solutions found that while the volume of home flips in the first quarter continued to decline, median profits off those flips rose and more flippers took advantage of continued low interest rates to use financing to purchase their properties.
In an earlier blog post, we looked at a subsection of the report that noted how the great majority of flips were completed by mom-and-pop operators. Now, we'll look into the overall numbers of the report and consider some of the implications of those numbers.
Dip in Flips
The total number of flipped houses sold in the first quarter of 2017 was at a two-year low of 43,615, down 8 percent from the previous quarter and 6 percent from the first quarter of 2016. It was the lowest number of flips since the first quarter of 2015.
ATTOM defines a flipped house as one that was purchased and sold within a 12-month period. ATTOM tracks publicly recorded sales in more than 950 counties across the country, accounting for more than 80 percent of the U.S. population.
Though the number of flipped homes declined in the first quarter, they still accounted for 6.7 percent of all homes sold in the quarter, an increase from the previous quarter (5.8 percent) and the same for a year ago.
Profits Up, But at a Price
The rosiest point of the report was that the average profit on flipped homes for the quarter was $64,284, the highest profit margin since ATTOM began recording the data in 2000. The median sale stood at $200,000, while the median purchase price was $135,716. The gross flipping profit in the fourth quarter of 2016 was $63,500 and in the first quarter of 2016 was $59,100.
As a return on investment, that record-setting profit actually represented a decrease to 47.4 percent, down from an average ROI of 49.0 percent in the fourth quarter and 48.5 percent in the first quarter of 2016.
These ROI numbers reflect the hot housing market, meaning flippers are able to turn a stronger profit, but they are having to pay up on the houses they choose to flip.
Turning to Financing
One way home flipping investors were able to obtain these higher-priced homes was to turn more to financing their purchases. Exactly one-third (33.3 percent) of homes sold as flips in the first quarter had been purchased with financing, up from 31.9 percent in the fourth quarter and 29.5 percent in the first quarter of 2016.
The percentage of financed homes actually was the highest level since the third quarter of 2008, when 37.6 percent of completed homes sold had been financed.
While discussing the Seattle market, where 51.6 percent of flipped homes were financed, Matthew Gardner, chief economist at Windermere Real Estate, noted, "The decision to finance is proof that these flippers believe the risks of financing are low due to our booming housing market." That statement rings true across the country as more flippers seek to leverage their own investments with financing at a time when interest rates remain relatively low.
Downsizing and Aging Flips
One other statistic to note from this quarterly report is the median size of home flipped in the first quarter dipped to 1,402 square feet, the lowest that number has been since data was kept beginning in 2000. Comparatively, the median sized flip in the fourth quarter of 2016 was 1,409 square feet and 1,428 in the first quarter of 2016.
The report also noted the median year built for flipped homes in the quarter was 1978, the same as the fourth quarter but down from 1981 in the year previous. These numbers reflect the overall trend in the housing industry as fewer newer homes are available on the market, so flippers will need to reach back in time and be prepared to bring homes more up to date for modern buyers.
If you're ready to learn more about how to leverage your investment in the home flipping business with affordable private money lending, contact us today for a personal consultation with one of our agents.
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