Home-Flippers Reliance On Leverage Rises To Highest Level In 9 Years

In the latest sign that the US housing market has peaked after an astounding post-crisis run-up, a report by ATTOM Data Solutions showed that the number of homes flipped by speculators fell to its lowest level in two years.

The report by ATTOM Data Solutions showed that 43,615 single family homes and condos were flipped nationwide during the first quarter of 2017, the lowest number since the first quarter of 2015.

However, even as the number of flipped homes has fallen, their share of total real-estate transactions has actually risen. During the first quarter, they accounted for 6.7% of all transactions, up from 5.8% in the fourth quarter of 2016, and unchanged from the same period a year earlier.

“The business of financing for home flippers continued to grow in the first quarter of 2017 even as the home flipping rate plateaued compared to a year ago and average home flipping returns decreased for the second consecutive quarter,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.

“Home flippers financed an estimated $3.5 billion in purchases for homes flipped during the quarter, up from $3.3 billion in the previous quarter and up from $2.4 billion a year ago to the highest level since the fourth quarter of 2007 — a more than nine-year high.”

The explosion in home valuations in urban markets like Brooklyn, Washington D.C. and San Francisco has inspired real-estate speculators to search for the next big score, with the highest percentage of home flips completed with the aid of outside financing occurring in Colorado Springs, Colorado (69.3 percent); Denver, Colorado (54.8 percent); Seattle, Washington (51.6 percent); Boston, Massachusetts (51.3 percent); and Providence, Rhode Island (47.3 percent).

Matthew Gardner, chief economist at Windermere Real Estate noted that escalating home prices in Seattle forced flippers to rely on financing their purchases.

“Seattle has such a high number of flippers who are financing their purchases relative to the U.S. as a whole due to escalating home prices in our region. The decision to finance is proof that these flippers believe the risks of financing are low due to our booming housing market,” Gardner said report by ATTOM Data Solutions