US home flips dwindle as bargains dry up

PUBLISHED : Wednesday, 27 August, 2014, 5:34am
UPDATED : Wednesday, 27 August, 2014, 5:34am

Home flipping, in which a buyer resells a property quickly for a profit, is on the decline as United States residential price gains slow and foreclosures dwindle.

Almost 31,000 single-family houses were flipped in the second quarter, representing 4.6 per cent of US home sales, RealtyTrac said in a report. That was down from 6.2 per cent a year earlier and the smallest share since the first three months of 2012, when prices bottomed after the crash, said the data company, which defines a flip as a property sold within 12 months of purchase.

Investors are making smaller profits and finding fewer opportunities for deals after a two-year surge in property values. The median price of second-hand homes rose 4.9 per cent last month from a year earlier, compared with a 13.1 per cent jump last year, the National Association of Realtors said. 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," said Daren Blomquist, a vice-president at RealtyTrac. "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 US$46,000, or 21 per cent of the return on the original investment, down from a peak of 31 per cent 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 deals compared with a year earlier, while Miami had an increase, it said.

Pittsburgh, New Orleans, Baltimore, Virginia Beach in Virginia and Daytona Beach in Florida provided the best returns.

The share of high-end flips is rising as fewer distressed properties become available. Homes with a sale price of US$750,000 or higher represented 4.1 per cent of properties quickly sold during the quarter, up from 3.4 per cent a year earlier. Sales of US$750,000 to US$1 million provided the best return, at an average 41 per cent.