Home flipping on the rise despite rising prices for houses

Despite rising prices, home flipping is increasing. It has increased 20 percent in the first quarter of this year compared with the previous quarter. It's now at a two-year high.

RealtyTrac, a source for housing data, released its Home Flipping Report, which shows that 6.6 percent (43,740) of all single family home and condo sales in the first quarter of 2016 were flips, a 20 percent increase from the previous quarter and up 3 percent from a year ago to the highest rate of home flips since the first quarter of 2014.

"For the report, a home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by RealtyTrac in more than 950 counties accounting for more than 80 percent of the U.S. population," the report noted.

It also pointed out that the 6.6 percent share of total home sales that were flips in Q1 2016 was still 26 percent below the 9.0 percent share at the peak of home flipping in Q1 2006, but was 55 percent above the recent trough in home flipping -- 4.3 percent of total home sales in Q3 2014.

"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.

"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.

"The good news is that - despite the 20 percent jump in the first quarter - home flipping nationally is not far above its historic norm, and home flippers in most markets appear to be behaving rationally and responsibly," Blomquist continued.

"In the first quarter, 71 percent homes flipped were purchased by the home flipper with cash - compared to only 37 percent who purchased with cash at the height of the flipping boom. Spending their own money rather than other people's money is keeping flippers conservative.

"On average they are buying the homes they flip at a 27 percent discount below full market value and selling them at a 6 percent premium above full market value, helping to deliver strong flipping returns on average."

• Email Jim Woodard at storyjim@aol.com.

© 2016, Creators Syndicate