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October 2017

Home flips in Seattle below national rate but YOY growth "somewhat concerning"

About 5.6 percent of all homes and condos sold nationwide this year during the second quarter were flipped properties, according to ATTOM Data Solutions, a multi-sourced national property database. Seattle's rate was lower.

Of the 53,638 properties analyzed, owners realized an average gross flipping profit of $67,516, which represents a 48.4 percent return on investment (ROI). Pittsburgh, PA yielded the highest ROI, at 146.6 percent, well above Baton Rouge, Louisiana, the second best ROI, where the average return was 120.3 percent. Honolulu had the lowest average return at only 17.8 percent. Other areas with the worst returns were Boise, Austin, San Jose, and San Francisco.

More than half (53 percent) of the 101 metro areas in the report posted a year-over-year increase in home flipping rates in the second quarter. Baton Rouge, Louisiana led that list (up 72 percent), followed by Rochester, NY (up 39 percent); Daphne-Fairhope-Foley, Alabama (up 29 percent); New York (up 24 percent); and Modesto, California (up 24 percent).

Flippers used financing for more than a third (35 percent) of homes flipped in Q2 2017, a nine-year high for that method. The estimated total dollar volume of financing for homes flipped during the second quarter was $4.4 billion, the highest level in nearly a decade.

About one of every four homes (25.5 percent) flipped in Q2 were sold to cash buyers and 18.2 percent were sold to buyers using FHA loans (often first-time homebuyers).

Seattle was among the top 10 metro markets with home flips purchased with financing. Colorado Springs, Colorado led that list at 68.4 percent, followed by Denver (56.1 percent); Boston (53.3 percent); Providence, Rhode Island (51.7 percent); and San Diego and Seattle, which both reported 49.0 percent.  Phoenix, Minneapolis-St. Paul, San Francisco and Portland rounded out that "top 10" list.

Attom defines a home flip as "a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data."

The 5.6 percent home flipping rate for Q2 was down from 6.9 percent in the previous quarter but unchanged from a year ago.

Attom analyzed data from more than 950 counties and 101 metro areas encompassing more than 80 percent of the U.S. population.

Nationwide 40.3 percent of all homes flipped in Q2 2017 were purchased as foreclosures or as bank-owned properties (REO), down from 43.3 percent in the previous quarter and down from 44.4 percent in Q2 2016. A high of 70.4 percent of homes flipped in Q1 2010 were purchased as foreclosures or as REOs.

States with the highest share of Q2 2017 home flips purchased as foreclosures or as REOs were Indiana (61.1 percent), New Jersey (60.0 percent), Maryland (59.4 percent), Illinois (52.7 percent), and Ohio (52.3 percent).

The ROI for flippers peaked at 51.1 percent in the third quarter of 2016, and marked the lowest level since Q3 2015.  This year's second quarter rate (48.4 percent) slipped from the previous quarter's return of 49.0 percent and from the same period a year ago (49.6 percent).

"Home flippers are employing a number of strategies to give them an edge in the increasingly competitive environment where flipping yields are being compressed," said Daren Blomquist, senior vice president at ATTOM Data Solutions. "Many flippers are gravitating toward lower-priced areas where discounted purchases are more readily available - often due to foreclosure or some other type of distress. Many of those lower-priced areas also have strong rental markets, giving flippers a consistent pipeline of demand from buy-and-hold investors looking for turnkey rentals."

"In markets where distressed discounts have largely dried up, flippers are showing more willingness to leverage financing when acquiring properties, often purchasing closer to full market value and then relying more heavily on price appreciation to fuel their flipping profits," Blomquist added.

CNBC credited home renovation televisions shows for the rise in home flipping.

One local economist, commenting on Seattle's activity, where 5.4 percent of home sales were reported to be flipped properties, had a mixed reaction.

"It is good to see the substantial drop in Seattle-area home flipping activity in the second quarter compared to the previous quarter, but the year-over-year growth is somewhat concerning," said Matthew Gardner, chief economist at Windermere Real Estate. "Home flipping can function to inflate home prices in a region, which as we saw in the run-up of the housing bubble, is not a good thing. That said, given the absolute number of flips relative to the total number of home sales (5.4 percent), it is not a huge cause for concern, at least not yet."

ATTOM Data Solutions is the curator of the ATTOM Data Warehouse, which blends property tax, deed, mortgage, foreclosure, environmental risk, natural hazard, health hazards, neighborhood characteristics and other property characteristic data for more than 150 million U.S. residential and commercial properties. Its data is used by businesses, consumers, government agencies, universities, policymakers and the media in multiple ways, including bulk file licenses, APIs and customized reports.

The company also powers consumer websites designed to promote real estate transparency, including RealtyTrace.com, Homefacts.com, and HomeDisclosure.com.