The Best Fix-and-Flip Markets in Early 2016

The new RealtyTrac report issued in May shows that house flipping activity has accelerated in 2016. According to RealtyTrac, flips accounted for 6.6% of all single family home sales in the first quarter of this year. That was up 20% from the fourth quarter of 2015, 3% higher than one year earlier and the highest quarterly flipped home rate in three years. The largest ever percentage of flipped homes occurred during the first quarter of 2006 when flips accounted for 9.0% of single family home sales.

House flippers are currently benefitting from interest rates near historic lows and tight housing inventories that are driving up home prices. According to RealtyTrac, during the first quarter of 2016 many house flippers were able to purchase properties at more than 25% below market value and resell rehabbed homes at a 6% premium (excluding rehab costs).  As shown in the chart below, profit margins improved from last year’s fourth quarter.

home-flipping-profit-markets

Source: RealtyTrac

Markets with the Highest Percentage of Flipped Homes

According to the report, house flipping activity reached new highs in nine of the 126 metropolitan markets analyzed by RealtyTrac. The most active flipping markets were Baltimore, Maryland; Buffalo, New York; Huntsville, Alabama; New Orleans, Louisiana; York-Hannover, Pennsylvania; Seattle, Washington; Virginia Beach, Virginia; and Bakersfield and San Diego in California. In Seattle, the percentage of flipped homes was up nearly 1/3rd from the previous quarter and 5% higher than a year ago.

Flipping activity was especially robust in these nine markets, but the national trend was also higher, with approximately 60% of the markets tracked by RealtyTrac posting increased rates of house flipping. Large markets (defined as more than one million residents) with significant flipping activity included New Orleans, San Antonio, Nashville, Cleveland, Columbus and Dallas. The biggest gain was recorded in New Orleans (45% increase). San Antonio was second with flipping activity up 34% compared to last year. Nashville and Cleveland each experienced a  26% increase and Columbus and Dallas posted 22+% gains in percentages of flipped homes.

The markets that posted the highest percentage of flipped homes in early 2016 were Memphis and Clarksville in Tennessee; Deltona-Daytona Beach-Ormond Beach in Florida and Fresno and Visalia-Porterville in California. Flips represented 13.3% of home sales in Memphis, 12.5% of home sales in Clarksville, and more than 11% of home sales in Fresno and Visalia-Porterville.

Other regions where house flipping exceeded the national average included Las Vegas and  Tampa, Virginia Beach, Miami and Jacksonville in Florida. Nearly 11% of home sales in Tampa were flips as were almost 10% of home sales in Las Vegas, Virginia Beach, Miami and Jacksonville. An expert on Florida housing markets noted average gross profits on South Florida flips were approximately $65,000 and gross ROI exceeded 50%.

Rising Trends in Gross Profits and ROI

House flipping gross profits nationally averaged $58,250 in early 2016, which was a ten-year high according to RealtyTrac. Average gross ROI was 47.8% and the highest quarterly ROI since 2012.

Several regional markets generated triple-digit gross ROIs, including East Stroudsburg, Reading, Pittsburgh and Philadelphia in Pennsylvania; Flint, Michigan and New Haven, Connecticut. East Stroudsburg posted the highest gross ROI at 212.2%, Reading was second at 136.4% and Pittsburgh ranked third at 126.8%. Rounding out the top six were Flint, Michigan (105.8% ROI), New Haven, Connecticut (104.8%) and Philadelphia, Pennsylvania (103.7% ROI).

Markets posting high double-digit gross ROIs included New Orleans (97.6%); Cincinnati (88.5%); Buffalo (85.1%); Cleveland (83.8%); Jacksonville, Florida (81.8%) and Baltimore (80.8%).

2017 Fix and Flip Outlook for Major Markest

According to this article in Money Magazine, inventory squeeze will likely remain an issue in late 2016 and into 2017, driving up home prices and creating more profit opportunities for fix-and-flip specialists. Nationwide, housing inventories were 9% below prior year levels in this year’s first quarter.  According to Zillow, 31 of the 35 markets it tracks had fewer home listings this year as compared to last year. Supply/demand imbalances drove up average home prices by 5.7% in 2015 and the National Association of Realtors predicts 4.5% higher prices this year followed by a 3.2% increase next year. In its recent analysis of the nation’s 20 largest housing markets, Moody’s Analytics predicted the following: 

The average price of a home in Oakland, California will rise by nearly 8% in 2016 and by 3% in 2017. Rising home prices are the result of more tech industry jobs moving to the area and constraints on housing supply from existing zoning restrictions.

Home prices in Seattle, Washington are forecast to increase by approximately 8% in 2016 and by at least 4% in 2017. A rebound in the Seattle housing market is attributable to new jobs and rising income in the region’s many tech industries.

Prices in the Atlanta, Georgia housing market are predicted to increase by nearly 5% in 2016 as the area benefits from an influx of new jobs and the formation of new households. However, growth is expected to slow to roughly 2% in 2017.

In the San Diego, California market, Moody’s is forecasting home price increases of 5% in 2016 and 3% in 2017. This growth is the result of solid but slowing income growth.

Benefitting from a surge in financial sector jobs, the Dallas, Texas market is projected to experience 4% higher home prices in 2016. However, growth is expected to slow to less than 1% in 2017.

According to the National Association of Realtors, overall housing demand will be fueled by increased household wealth and more job opportunities while rising home prices will put some millennial buyers on the sidelines, transitioning the market to slower but more sustainable growth.

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