House flippers are racing against rising prices to make fast profits.
In the first half of this year, 9% of the single-family homes that sold were resold again within six months — meaning “flipped,” according to market researcher RealtyTrac.
But some markets are already seeing flippers recede following sharp gains in home prices. Flipping declined in the first half of this year vs. last in 32 of 100 markets, including in cities that have seen rapid price gains, such as Las Vegas, Phoenix, Atlanta and San Jose, RealtyTrac says.
Meanwhile, flipping is increasing in markets with more muted home price gains, including New York, Washington, D.C., Chicago and in several Florida cities.
Palm Coast, Fla., led the way, where 37% of single-family home sales were flipped in the first half of this year. Omaha followed at 32% and Daytona Beach, Fla., at 16%.
“The flippers try to catch the wave at the bottom,” says Daren Blomquist, RealtyTrac vice president. About 8% of sold single-family homes were flipped last year, he says.
Flippers — who take advantage of rising prices to turn quick profits — were partially blamed for inflating the housing bubble before the market crashed in 2006. That could happen again in some markets, says John Burns, CEO of John Burns Real Estate Consulting.
He hopes that rising interest rates will cool price gains and flipper interest. The average 30-year fixed rate was 4.37% this week, up from 3.5% a year ago, Freddie Mac says.
On the other hand, flippers often pay cash for homes that are in such bad shape that banks won’t lend on them, says Mark Goldman, real estate expert at San Diego State University. He’s invested in three flips this year.
Flippers don’t inflate home prices, he says, they “improve housing inventory.”
Strong price gains in San Diego, combined with tight inventories, have made flipping less profitable, Goldman says. Instead of the 20% profits seen two years ago, 10% is now more the norm, he estimates.