House 'Flipping' Plummets in US

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Three months after news reports proclaimed the return of home flipping in the U.S., the number of flips plummeted as turnaround specialists found it to harder to find good deals.

The number of flips fell 35 percent from the second quarter and was down 13 percent from the third quarter of 2012, according to RealtyTrac, which issues a quarterly report on the flip market.

Flipping is defined as a home that is purchased and resold within six months. Wildly popular during the pre-crash run-up, flipping spawned reality TV shows and waves of amateur real estate investors, until the practice crashed in spectacular fashion.

Flipping made a return post-crash when speculators spotted opportunities in the distressed prices. But home prices have been rising dramatically in many markets - and the number of foreclosures is dropping -- making it difficult for speculators to find deals.

"Increasing home prices over the past 18 months combined with decreasing foreclosures have created a market less favorable to the high quantity of middle- to low-end bread-and-butter flips that we saw late last year and early this year," said Daren Blomquist, vice president at RealtyTrac.

Last quarter's report from RealtyTrac prompted a wave of stories announcing that "flipping is back," after overall data showed a 19 percent increase from the same period a year earlier, a 74 percent jump from the first half of 2011. But a closer examination of RealtyTrac's report found that flipping was already tapering off in many of the cities most popular with speculators.

The third quarter report showed the trend continued, with steep drops in markets such as Phoenix, where flips were down 37 percent from a year earlier and Tampa, whch was down 47 percent.

The overall decline in flipping in the third quarter was partially offset by an increase in the flips of luxury homes. The number of homes priced over $750,000 resold was up 34 percent from a year ago, although still 13 percent below the second quarter.

The high-end deals helped push up flipping profit margins. Investors made an average gross profit of $54,927 on single family home flips in the third quarter. That was up 12 percent from an average gross return of $48,893 in the third quarter of 2012.

"The sharp rise in high-end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes," Mr. Blomquist said. "With that higher risk also comes the potential for higher reward. The average gross profit on each high-end flip equals more than four times the average gross profit on each flipped home in the lower price ranges."

Some markets did post increases in flipping, including Atlanta, where quick resales were up 32 percent from a year ago and Chicago, where flipping was up 28 percent.