Home flipping, in which a buyer resells a property quickly for a profit, is on the decline as residential price gains slow and foreclosures dwindle.
Almost 31,000 single-family houses were flipped in the second quarter, representing 4.6% of U.S. home sales, RealtyTrac said in a report today. That's down from 6.2% a year earlier and the smallest share since the first three months of 2012, when prices bottomed after the crash, according to the Irvine, Calif.-based data company, which defines a flip as a property sold within 12 months of purchase.
Real estate investors are making smaller profits and finding fewer opportunities for deals after a two-year surge in property values that's now slowing. The median existing-home price climbed 4.9% in July from a year earlier, compared with a 13.1% jump in the same month of 2013, the National Association of Realtors said yesterday. Distressed homes accounted for the lowest share of sales since at least 2008.
"The flippers' formula is to buy a property that they can add value to at a discount and sell at a premium," Daren Blomquist, vice president at RealtyTrac, said in a telephone interview. "Now, home-price appreciation has slowed dramatically in many of the flipping meccas and the availability of discounted distressed properties has dried up."
The average gross profit per home flip in the second quarter was $46,000, or 21% of the return on the original investment, down from a peak of 31% a year earlier, RealtyTrac said.
The metro areas with the most flips were Phoenix, Los Angeles and Miami. Flips in Phoenix and Los Angeles represented a smaller share of transactions compared with a year earlier, while Miami had an increase, according to RealtyTrac. Pittsburgh, New Orleans, Baltimore, Virginia Beach and Daytona Beach, Fla., provided the best returns, the company said.
The share of high-end flips is increasing as fewer distressed properties become available. Homes with a sale price of $750,000 or higher represented 4.1% of properties quickly sold during the quarter, up from 3.4% from a year earlier. Sales of $750,000 to $1 million provided the best return, at an average 41%, RealtyTrac said.