Profits for flipping houses peaked but high prices drove down returns
Despite gross home flipping profits hitting an all-time high in the first quarter, the average return on investment neared a three-year low, according to Attom Data Solutions' Home Flipping Report.
Houses flipped sold at an average gross profit of $69,500, up from $66,287 year-over-year in the first quarter of 2018 and from $68,250 month-over-month. Compared to the acquisition price, the first-quarter gross flipping profit translated into an average $47.8% ROI which is down from 50.3% a year ago to the lowest level seen since 2Q15.
While high home prices may seem good for house flippers, it still means they'll have to pay more up front to purchase the properties. This is a likely explanation for the share of homes purchased with financing rising to 35.7%, a more than nine-year high.
"The 2018 housing market is a double-edged sword for home flippers," Daren Blomquist, senior vice president at Attom, said in a press release.
"Rapidly rising home prices boosted by 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," he said.
About 48,457 houses were flipped in the first quarter, which represented 6.9% of all homes sold in 1Q18. This is up from 5.9% in the prior quarter and unchanged from a year ago.
Despite the home flipping rate matching a six-year high in the first quarter, about 55% of markets saw local flipping rates decline. This could present an opportunity for flippers to transition into the new construction market, which would help provide more housing inventory at a time where demand continues outpacing supply.