If you think the sales of flipped homes are a canary in the coal mine for the single-family resale market Attom Data Solution’s Q3 Home Flipping Report signals it’s time to buckle your seatbelt. All the indicators point to a slowing market.
The report shows flips were down 12% from a year ago and it their lowest level since Q1 2015.
Here in Northeast Tennessee Q3 flips were down 20% from last year. That’s also the lowest they have been since Q1 2015. However, flips and new home construction had the only negative numbers in the Q3 housing market reports. And while residential resales are seeing some seasonal slowing and a slight trend moderation, they remain on track for another record year.
“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,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “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 Q2 2006 through Q4 2008 and leading up to the last housing crash.”
Locally flips were down by 124 during Q1 up by three in Q2 and down by 22 in Q3.
Flip sales have a unique – if not disproportionate – relationship to national norms. They are a critical component to the primary home pricing tier for local resales. Traditionally, resales in the $200,000 and below range have accounted for about 72% of all home sales. That share has tightened during the past year because the market absorbed so much of the inventory in that price range. That was the combined effect of buyers and investors – both individual and institutional – who are banking on an expansion of the local rental market. Flips are important to that price tier because most are below that $200,000 benchmark.
A larger share of flippers is also cash buyers. According to Attom, 61.2% of flips were bought with cash. The share was higher in each of the local zip codes. That ranged from 100% in 37660 in Kingsport to a low of 75% in 37620 in Bristol.
The median purchase price for homes bought to flip is also much lower than the national median of $148,000. Here’s what the look like on the local level. The drill down is by zip code.
37601 (Johnson City) – $104,550
37604 (Johnson City) – $92,200
37620 (Bristol) – $59,250
37642 (Elizabethton) – $54,250
37660 (Kingsport) – $47,300
37554 (Kingsport) – $85,000
One reason for the low price in 37660 is 42% of the purchases were foreclosures.
Here’s how the median local flipped prices look when compared to the U.S. median of $211,000.
37601 – $126,000
37604 – $134,600
37620 – $118,500
37643 – $96,500
37660 – $101,500
37664 – %164,000
Nationwide the average gross return on investment for flips was 42.6%.
Locally only one zip code was lower.
Here’s how those gross ROIs look:
37601 – 20.5%
37604 – 46%
37620 – 100%
37643 – 77.9%
37660 – 114.6%
37664 – 92.9%
The local share of flipped homes to total Q3 resales ranged from 12% in 37660 to 18% in 376453.
ATTOM Data Solutions analyzed sales deed data for this report. A single-family home or condo flip was any arms-length transaction that occurred in the quarter where a previous arms-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.