What's powering the house-flipping rebound
That twirling sound you hear is a house being flipped. The number of people buying dilapidated homes, fixing them and reselling them for a profit has returned to levels not seen since the housing bubble was building up in 2005.
Data from RealtyTrac released today show that 6.6 percent of all single-family home and condo sales in 2016's first quarter were flipped, the biggest gain since the same period in 2014. That's an increase of 20 percent from the previous quarter and a 3 percent year-over-year gain.
Even so, flipping levels remain below the 9 percent peak they hit in 2006 just before the real estate market collapsed. RealtyTrac defines house flipping as a property sold for a second time in a year in an arm's-length transaction.
"After faltering in late 2014, home flipping has been gaining steam for the last year-and-a-half, thanks to falling interest rates and a dearth of housing inventory for flippers to compete against," said Daren Blomquist, senior vice president at RealtyTrac, in a press release. He added that home flippers in most markets are behaving "rationally and responsibly."
Banks adopted more stringent credit standards in the wake of the financial crisis, and as a result, most people who flip houses today -- 71 percent -- buy the homes for cash, compared with 37 percent of investors at the height of the market bubble.
The share of home flipping reached all-time highs in the first quarter in nine of 126 metropolitan statistical areas, including Baltimore, New Orleans and Huntsville, Alabama. Flipping also reached highs in Seattle, San Diego and Virginia Beach, Virginia.
The gains in Seattle, where the share of homes flipped in the first quarter soared 32 percent from the previous quarter and 5 percent compared with a year earlier, caught Matthew Gardner, chief economist with Windermere Real Estate, by surprise.
"My hope is that this is a temporary byproduct of having far more buyers than available inventory, as an increase in home-flipping numbers can artificially inflate prices and makes homes even less affordable for buyers," he said. "Thankfully, we are starting to see modest increases in the number of homes for sale in Seattle, which should cause a slowdown in price growth as we head into 2017."
People who flipped homes in the first quarter yielded an average gross profit of $58,250, a high not seen in more than a decade.
Not surprisingly, some cable-TV shows that feature house flipping are experiencing a rise in viewership. HGTV, owned by Scripps Networks (SNI), had its highest-rated and most-watched April ever, thanks to the popularity of its new hit series "Good Bones," starring mother-daughter home-renovation and flipping duo Karen E. Laine and Mina Starsiak.
Another HGTV show, "Flip or Flop," starring husband-and-wife flipping team Tarek and Christina El Moussa, returns for a fifth season on June 9. The show had its best ratings ever in its fourth season. The popularity of "Zombie House Flipping" enabled rival network FYI to deliver its best-ever first-quarter ratings among viewers aged 18 to 49.
Experts caution that investors tempted by the eye-popping returns of house flipping should do their homework, particularly if they're considering shelling out big bucks for seminars offered by some house-flipping experts featured on TV. Many real estate investors argue those lessons are a waste of money.