Dollar volume of financed flip purchases hits 14-year high

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The dollar amount of fix-and-flip properties purchased using financing reached a 13-year high in 2019, but the share of flips financed was lower year-over-year, according to Attom Data Solutions.

There was $32.5 billion in financed flips last year, compared with $26.9 billion in 2018. This is the most volume since 2006, when $43.7 billion of fix-and-flip property purchases by investors used financing. The total volume of flip purchases was $74.3 billion, the most since 2005.

But the share of flipped homes purchased with financing fell to 43.8% in 2019, down from 45.9% in 2018. Since 2008, less than half of flip purchases used financing.

When looked at on a quarterly basis, just 39.6% of flips were purchased using financing in the fourth quarter, a three-year low. This compared with 44.2% in the third quarter and 45.9% in the fourth quarter of 2018.

Meanwhile, the number of single family and condos flipped during 2019 totaled 245,864, up 2% compared with 2018 and the most since 2006. This represented 6.2% of all homes sold last year, up from 5.8% in 2018.

"Home-flipping profits across the U.S. dropped again in 2019 as the business of buying and selling houses absorbed its worst year since the housing market was mired in the fallout from the Great Recession. This happened as the cost of buying properties continued to rise faster than gains on resale," Todd Teta, chief product officer at Attom Data Solutions, said in a press release. "That's not to say that the home-flipping industry is tanking or losing its allure for investors because home flipping rates are higher than they've been in eight years. But profits did continue to decline again for investors."

In the past, Attom noted that lower profit margins are one of the motivators for fix-and-flip buyers to seek financing.

Gross profits from flipping activity fell to a median of $62,900 from $65,000 in 2018. The post-recession peak was in 2017 at $66,899. Those lower profits might be playing into an increase in foreclosure starts that took place last year and into the start of this one.

"While the gross profit figures do not include the cost of rehabbing the properties, which will serve to reduce profitability, the measure itself is something that Roc Capital focuses on heavily in its underwriting process," Maksim Stavinsky, co-founder and COO of Roc Capital, said in the Attom press release. "Roc delinquency figures have remained static year-over-year, however we do see a broad increase in nationwide lis pendens filings by lenders in the fix-and-flip space that exceeds the volume growth evident in this report."

A lis pendens filing is the initial formal notice that starts the foreclosure process.

"For 2019, the year-over-year increase in lis pendens filings in this space was greater than 50%, with most of that increase occurring in the second half of the year, and the first two months of 2020 shows a further 30% or greater increase in lis pendens filings over 2019," Stavinsky said. "While actual losses from delinquencies have been low across the space, historically rising delinquencies have been a precursor to losses, so prudent underwriting is more important than ever in this environment."

The average time to flip a property last year was 178 days, one day less than in 2018.

Of the total flipped, 14.4% were sold to a buyer that used a Federal Housing Administration-insured mortgage. This was up from 13.1% in 2018, but down from 16.2% in 2017.

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Real estate Distressed Purchase Foreclosures Housing market Attom Data Solutions Underwriting FHA