The growing popularity of home flipping could overheat the housing market, according to a recent RealtyTrac report.
The percentage of homes sold in Q1 that were flipped jumped 20% compared with the last quarter of 2015, RealtyTrac reported. The percentage of flips increased in two-thirds of the states when compared with a year ago.
"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," RealtyTrac SVP Daren Blomquist said. "While responsible home flipping is helpful for a housing market, excessive and irresponsible flipping activity can contribute to a home price pressure cooker that overheats a housing market, and we are starting to see evidence of that pressure cooker environment in a handful of markets."
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Home flipping is happening at a less aggressive rate than during the mortgage boom. The 6.6% share of total homes sold that were flips during the first quarter was 26% below the peak of home flipping in the first quarter of 2006.
Still, home flippers had an average gross profit of more than $58,000 in the first quarter, the highest level since the third quarter of 2005. And 71% of the flips were purchased with cash, compared to only 37% of flips during the peak in Q1 2006.
A home flip is defined by RealtyTrac as a home that is sold in an arms-length sale for the second time within a 12-month period.
Some 21% of the flips completed in the first quarter of the year were purchased as bank-owned homes, compared with a high of 29% in the third quarter of 2009.
The share of home flipping reached new all-time highs in nine cities during the first quarter of 2016: Baltimore, Buffalo, Huntsville, Ala., New Orleans and York-Hanover, Pa. Home flipping as a share of total sales increased from a year ago in 75 of the 126 metropolitan statistical areas analyzed by RealtyTrac. The cities with the largest increases were New Orleans, San Antonio, Nashville, Cleveland, Columbus, Ohio and Dallas.
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