Sentinel staff report–
Six years ago, more than one in five homes for sale in Citrus Heights was the result of “flipping” — where an investor purchased a home, fixed it up, and then quickly put it back on the market with a marked up price. Today, a new report shows that figure has dropped to about one in every 20 homes for sale in Citrus Heights.
ATTOM Data Solutions, a nationwide property database curator, released its latest Home Flipping report on Thursday, covering the latest trends for the second quarter of 2018. Nationally, the report found home flipping saw a 5% drop since last year, with an ATTOM analyst citing lower returns on investment and higher interest rates as factors in the latest trend.
“Home flipping is settled down after peaking a few years ago in the wake of the Great Recession,” said ATTOM Senior Vice President Daren Blomquist, in an email to the Sentinel. Asked to comment on trends in the local area in particular, he said home flipping rates peaked in Citrus Heights during the first part of 2012 when more than 20% of home sales were flips, but during the most recent quarter flipping only accounted for 5-7% of home sales in Citrus Heights.
Not all areas of Citrus Heights are the same, however. The data shows homes sold in the 95610 zip code, which covers the eastern portion of the city, were more likely to have been flipped. Those homes were also more likely to have seen a higher gross return on investment, compared to the 95621 zip code in the western half of the city.
While homes in the 95610 area may have been more profitable flips, they also took more than twice the time to flip compared to last year. By contrast, homes in the 95621 zip code saw their average flip time cut in half during the same period. Nationwide, the average flip took about 182 days — or about six months — compared to an overall average of 181 days in Citrus Heights.
In the 95610 zip code, gross returns on investment (ROI) for home flips also saw a 14% increase between the first two quarters of 2018, while home flips in the 95621 zip code saw a 6% drop during the same period. That meant a home purchased in the eastern part of the city for the median price of $275,000 sold for a flipped price of $395,000, an average of 43.6% gross profit, the report shows.
In comparison, home flips in the neighboring community of Antelope only saw 22% gross ROI, homes in Folsom saw 16%, and homes in Rancho Cordova saw about 45%. The report found highest gross ROI in Birmingham, AL; St. Louis, MO; and Fayetteville, TN — all of which had flipped homes selling at an average of more than 300% higher than the initial purchase price.
The report, based on bulk data available from property transactions, has limitations in determining net profit on home flips since the actual cost of rehab and other investment costs were not known and not included.
ATTOM defines a home flip as any single family home or condo which was purchased and then re-sold within 12 months. The company says gross returns on investment were calculated by comparing the first sale with the second sale, while acknowledging that flipping veterans estimate rehab and investment costs “typically run between 20-33% of the property’s after-repair value.”
Nationally, data included in the report shows an overall slowdown in home flipping along with a change in the types of sales, with only 32% of homes flips purchased via foreclosure or bank sale in the most recent quarter — compared to 68% in 2010.
“Fewer distressed sales are limiting the ability of home flippers to find deep discounts even while rising interest rates are shrinking the pool of potential buyers for flipped homes,” said Blomquist in a news release accompanying the report. “These two forces are squeezing average home flipping returns, pushing investors to leverage financing or migrate to markets with more distressed discounts available to achieve more favorable returns.”
Blomquist also told The Sentinel those factors may have played a role in why investors are flipping older homes in Citrus Heights, with the average build year of homes flipped in the last quarter being the 1960s to mid-1970s. By contrast, the median build year of homes flipped in Sacramento was 1976 and the national average was 1978.
“As the distressed pipeline dries up, flippers are turning to older housing stock that may be more of a value-add opportunity, meaning they can rehab to modern tastes to exponentially increase the price point,” he said.
Read the full report here.
Related: Homes ‘underwater’ in Citrus Heights hit rock-bottom low, report shows
