Home Flipping Hits Pre-Crisis Peak, Raises Concern Over a Housing Bubble

House flipping, or buying and reselling a home quickly to make money, is on the rise. In some markets, house flipping has even exceeded peaks set prior to the crisis, prompting concern that housing bubbles may be developing.

The March report published by RealtyTrac defined a flip as a home bought and sold again within 12 months. Almost 180,000 homes and condos were flipped in 2015, accounting for 5.5% of all sales during the year. Flipping rose in 75% of markets, along with profits.

The report found that house flipping in 12 metro areas last year exceeded the peak set in 2005, two years before the mortgage market collapsed and led to the Great Recession.

Home flips exceeded 2005 levels in Birmingham, Cleveland, San Diego, and Buffalo, but San Diego and Seattle saw a drop from 2014 levels. Three metro areas in Florida — Lakeland, Homosassa Springs, and Jacksonville — saw home flips go up 40-50%. The Miami metropolitan area had more home flips than any other area in the country. Almost 9% of all Miami sales for the year were flips.

The report quoted Matthew Gardner, chief economist of Windermere Real Estate, as saying, “When home flipping numbers go up, it’s usually an indication that the housing market is in trouble.”

House flipping profits also hit a 10-year high. Home flippers netted an average of $55,000 per sale before transaction and renovation costs. Profits were over $100,000 in hot markets like Los Angeles and New York City. Home flippers are seeing the best returns in Cincinnati, New Haven, New Orleans, Philadelphia, and Pittsburgh, but the highest dollar returns are in New York and California, which also require more money down.

The number of home flippers is also on the rise as smaller investors take notice. The report found the number of home flippers increased to levels not seen since 2007, but the number of flips per investor fell.

Some analysts are concerned that prices are increasing too fast due to a low supply of homes, not because buyers can afford home prices. A CoreLogic report found that home prices in January were almost 7% higher than January 2015, and home flipping can artificially push prices up, especially in areas with low inventory.

The home flipping game has changed since 2005, however. During the housing boom, flippers put almost no money into the investments and relied upon cheap credit, which is no longer an option. Investors must now put more money down for the home and more money into renovation, as homes are often in severe disrepair.