Real estate data showed investment gains from home resales hit an eight-year low in the second quarter, with the number of homes being resold falling more than 5% from a year earlier. During that same period, home prices themselves rose more than 4%, but profits on resold homes fell 2%.
“Flipping” a house or condo — buying it cheap, renovating it, and selling it at a profit — is as much a part of the American dream as homeownership itself, and cable TV is replete with hit shows like “Flipping Out,” “Flip This House” and “Flipping Vegas.” But recent data suggests this still-profitable market may have peaked, or at least taken a breather.
A new report on nationwide home resales conducted by real estate data provider ATTOM Data Solutions concludes that the number of homes being resold fell by more than 5% in the second quarter compared to the same period last year. But what's more ominous is that resellers' average return on investment — the difference between the purchase price and the sale price of a property — fell to an eight-year low, according to ATTOM Data.
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These findings are especially significant because the second quarter, from April to the end of June, is traditionally when most people buy and sell homes. And while home prices themselves rose more than 4% during this period, profits on resold homes fell 2%.
“Home flipping is becoming less and less profitable, another sign that the post-recession housing boom is fading and nearing an end,” warned Todd Teta, chief product officer at Atom Data.
Teta isn't about to let his guard down just yet. “Home flipping is still a good business and profits are good in most parts of the country, but they're not as good as they were a few years ago,” he added.
During the real estate boom of 2004-2006, flipping properties was seen as a great way for middle-class people to make money as lenders were readily offering loans. But that all came crashing down with the Great Recession of 2008. And property flipping has only been revived partially by hedge funds and private equity firms that could still afford to invest in the market.
As home prices began to recover in 2011, home resales began to trend upward again, with individuals and institutions totaling more than 138,000 homes being resold in 2017, according to ATTOM Data.
Data providers believe flippers can still make money: A typical flip gross profit in the second quarter (which doesn't include flippers' renovation, operating, property taxes and selling expenses) was nearly $63,000, or about 40% of the home's purchase price, but that's down from more than 44% a year ago.
And homes are taking longer to sell: Homes that resold in the second quarter sold in an average of 184 days, up from 180 days earlier this year and one day longer than a year ago.
The good news for home flippers is that new home construction is not keeping up with demand, and older, renovated homes are becoming more valuable, especially in cities.
While home resales declined overall for the quarter, more than 100 of the nearly 150 metro areas analyzed by ATTOM Data saw increases in home resales. Raleigh, North Carolina, saw a 72% increase in home resales, while nearby Charlotte saw a 54% increase. Atlanta and San Antonio, Texas, saw increases of 46% and Tucson, Arizona, saw a 43% increase.
In Pittsburgh and Oklahoma City, property resales hit new peaks. In contrast, they declined in Springfield, Missouri, and fell by 50% in Baton Rouge, Louisiana.
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Ed Liefeld