According to Bloomberg News, Realtytrac has floated the opinion that flipping houses in the U.S. “waned” in the second quarter of 2014. So why might there be fewer transactions? Is it the end of the line for house flippers? Or just the beginning for the savvy few?
According to RealtyTrac data, 31,000 homes were flipped in Q2, representing almost 5% of U.S. homes sales during the period. However, this is down around 6% from the previous year. So why might house flipping be on the decline? What is this data hiding? Where are the deals hiding?
Behind the House Flipping Data
It is critical to understand that it is difficult to track house flipping. There are many ways to flip homes, and many deals may be going on under the radar. Data is often also flawed or tainted for many reasons. The housing market is constantly in flux, and changes in waves. So it may be entirely true that there is intense competition in some real estate markets, with inexperienced investors spending too much on rehabs, and some newbies may be frozen from expecting too much after being spoiled for years. However, it is also true that there are plenty of opportunities for those willing to look.
Foreclosures on the Rise in 2014
In the same week, Reuters published a different set of numbers and comments from RealtyTrac’s Vice President Daren Blomquist. This press feature highlighted how foreclosure activity actually rose in July 2014. This includes areas like Southern California, which just saw a reversal in trends to increases in foreclosure activity, after 3 years of declines. Moreover; MD, NJ, and NY saw foreclosures rise for 2 years. Foreclosures remained highest in FL, with IL and NV not far behind. In Las Vegas, defaults are up over 50% in 2014.
We’re talking about at least hundreds of thousands of homes in some form if distress, if not millions.
Where are the Deals?
According to Trulia, 76% of U.S. metros are still undervalued in 2014. Between this, years of distressed deals left in the pipeline, and the National Association of Home Builders reporting a 21.7% surge in new housing starts, there should be no shortage of deals to find. In addition to mortgage related pre-foreclosures and auctions, there are vacant properties, estate sales, homeowners with back property taxes or going through divorce as sources of deals.
The Snags and Solutions
Of course there are some snags and drags in the market. There are unrealistic real estate agents that have been spoiled by high demand. There are some great Realtors, but also those that will hold up deals because they want to push up values to protect their own holdings, or to double dip on commissions and boost commissions. Then there are unrealistic sellers, and property managers which can block deals for their own benefit. Most will eventually soften if real estate investors and buyers, and sellers refuse to put up with it.
Some real estate investors may need to adjust or even switch up their methods. Wholesaling, long term hold, different niches and destinations, or just getting better educated and adopting better systems and practices for flipping houses are all potential solutions.
Still, according to RealtyTrac, flipping houses is not a bad payday as it is. Per the data, “the average gross profit per home flip in the second quarter was $46,000, or 21 percent of the return on the original investment.