Record low inventories of homes for sale and new home construction that is lagging demand has upped the interest in home flipping in the Tri-Cities region. And the fact that flippers are seeing lower gross return on investment (ROI) than they did last year, but are still doing better than the national average this year doesn’t hurt.
ATTOM Data Solutions’ Q1 House Flipping Report shows there were there were more flips in most local counties included in the report than during the first three months of last year. Sullivan County is the fewer sales exception while Washington County is the exception where flippers are averaging more gross ROI.
The report lists 103 flip sales in the four NE Tennessee counties included in the report. Here’s how they ranked:
- Washington – 35
- Sullivan – 31
- Greene – 24
- Hawkins – 13
This year’s sales were an increase in the percentage of total home sales in every county except Sullivan, which led county markets in the number of existing home sales closings during the first four months of the year. Sullivan and Kingsport are also the only local markets where their market share of closings is higher than their 2017 annual benchmarks. A breakdown of that data can be found at the Northeast Tennessee Association of Realtors (NETAR) Web Site’s Hot Markets Page https://netar.us/hot-markets
Nationwide the average gross flipping profit was $69,500 which translated into a 48.8% ROI. Each local county – except Sullivan – had a higher percent ROI than the national average and Sullivan, with 44.5%, wasn’t far off the pace. The percent ROI is higher than the national average because local purchase prices were lower.
“The 2018 housing market is a double-edged sword for home flippers,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Rapidly rising home prices boosted by a low available inventory of homes for sale or for rent are padding profits at the back-end when flippers sell, but those same market realities are eroding flipping returns at the front end by forcing flippers to pay more to acquire homes to flip.”
Local flippers face the same problems. Lumber and other building materials have and continue to increase in price, and the region’s labor shortage has upped the overhead. And they’re facing the same lack of inventory buyers face, so it’s harder to find a home to flip. And since the market has absorbed the excess inventory foreclosures that used to sell for deep discounts and were a mainstay for flippers have seen steep price increases.
But there are things working in their favor.
The first is an inventory that’s tighter than many local real estate professionals have ever seen. In April most, the large county markets had less than four months inventory and the large city markets – Kingsport and Johnson City – had barely more than two months inventory. New home builders are working full steam to keep up with demand, but there’s as much a shortage of new homes as existing home.
And since the most of the region existing homes (59%) are more than 20 years old, there’s an increasing interest among both consumers and civic leaders in seeing more flips since it adds to inventory. The flipping trend is also welcomed by affordable housing advocates since half of the flips during Q1 are firmly in the affordability range. On the other end of the spectrum, some of the flips are in the $300,000 price range. Government officials like the trend because it increases the property tax volume, which many of them think has not kept pace with the recovery of the housing market.
According to ATTOM, “Homes flipped in Q1 2018 that were originally purchased with financing by the home flipper represented 35.7% of all homes flipped during the quarter, up from 35.3% in the previous quarter and up from 33.5% a year ago to the highest level since Q3 2008 — a nine and a half-year high.”
The average time to flip nationwide was 183 during the first three months of this year. Only Washington County had better performance in that metric among the local counties in the Q1 study.
ATTOM Data Solutions analyzed sales deed data for this report. A single-family home or condo flip was any arm’s-length transaction that occurred in the quarter where a previous arm’s-length transaction on the same property had occurred within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property’s after repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the first sale (purchase) price.