2020 altered and realigned the real estate market in many ways, but aside from a brief blip, things have remained business as usual for house flippers. The share of purchases that can be classified as flips took a slight drop in the first and second quarter of 2020 but has since returned to its regular market share. In March 2021, the flipping rate was 2.8%, the same as one year ago. So despite record home price appreciation, flippers do not appear to be trying to cash in on the boom.
Figure 1: Share of Purchases
While the national flipping rate has remained the same, the flipping market has seen a slight redistribution geographically over the past year. Flipping activity has declined on the coastlines with big, expensive cities like Seattle, New York, Boston, Chicago, San Francisco, and Philadelphia amongst the least active markets for flipping.
Figure 2: Change in Flipping Rate by State
Flipping has been on the rise in the Mountain-West, and South, with markets like Phoenix, Memphis, Salt Lake City, and Boise all ranking among the top in the country.
Ultimately, the fundamentals driving flipping activity are the ones that drive all real estate investment strong economic growth, low prices, and fewer regulations.
Figure 3: Flippers and Investors Respond to Same Trends
The incidence of flipping is high where investment is high generally, suggesting that both flippers and longer-term investors are responding to the same signals. It should be no surprise that the flipping rate grew the most in Boise, Idaho, and Salt Lake City, Utah. These two areas that have had some of the strongest employment growth in the country coming out of the pandemic.
Figure 4: Returns Flippers Made as Compared to S&P 500
Given that there has been record home price appreciation, it might seem surprising that more home flips are not occurring, but there are good reasons the rate remains the same. On average, in March 2021, the returns of flippers made were 3.7% lower than the returns on an S&P 500 index fund. With the returns on flips being lower than other, considerably easier investments to make, there is little reason for new flippers to enter the market. So, although there has been some change in the geographic distribution of where flips take place, nationally the rate remains the same, as overall, it is not a relatively more attractive investment than it has been in the past.
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