Luxury House Flipping Is on the Rise, but Still Lower Than Before the Recession

Luxury house flipping has increased in several markets throughout the U.S., according to data from realtor.com provided to Mansion Global. In 2018, 2.6% of homes valued at over $1 million were flipped, compared to 2.2% the previous year.
Realtor analyzed markets where there were at least 20 flips on homes that sold for more than $1 million, from January to October of 2018, defining a flip as a home that sold twice, for a profit, within a year.
Although the data show that house flipping is rising, its frequency remains low relative to the years before the 2008 recession.  

Mansion Global is owned by Dow Jones. Both Dow Jones and Move.com are owned by News Corp.
Real estate analysts say that house flipping in the early 2000s helped fuel the burst of the housing bubble, and as a result, banks today are exercising far more caution when determining who qualifies for large home loans. Today, house flipping is at a 10-year high across the country, but mostly for homes valued in the low millions.
"The main trend we’re seeing is that the million-dollar mark is not what it used to be. If you look at the 2018 numbers, there’s a lot of activity happening at the entry level," Mr. Vivas said. "There’s still demand at that price point, which is causing activity to surge slightly.
Markets seeing the largest frequency of house flipsThe number of investors flipping houses has declined over the past decade, but last year saw a modest increase in luxury home flipping, with 14 of the 15 markets that Realtor looked at showing a rise in the share of home sales that were flips.
The California markets of Los Angeles, Long Beach, and Anaheim had the most substantial gains and topped the list for the second year in a row, with an increase in the percentage of luxury home flips from 3.4% in 2017 to 4% in 2018.
Mr. Vivas attribute this to the region’s higher luxury inventory and fast-paced market.
"It was one of the fastest-growing luxury markets last year overall, so it’s a function of sales being higher and growing at a healthy pace, which can result in flips growing at a healthy pace," he said. "The share of inventory above $1 million in Los Angeles is large, too, and above most other markets."
There has also been a shift in L.A.’s culture that is drawing in new investors from around the globe, said Santiago Arana, a broker with The Agency in Los Angeles.
"L.A. has finally become a worldwide, destination city where wealthy people want to invest in real estate," Mr. Arana said. "Tech companies are moving in, there’s been a gigantic investment in the new football stadium, George Lucas is opening a new museum, and there is incredible growth and development downtown."
Of the markets analyzed, the area encompassing Miami, Fort Lauderdale and West Palm Beach was the only one to experience a slight decrease, dropping from 2.1% in 2017 to 1.7% in 2018.
"There appears to be no correlation between the growth in sales and subsequent flipsin each respective market," said Jonathan Miller, chief executive of New York-based appraisal firm Miller Samuel. "In fact, sales in Miami rose sharply by 27.7%, and the share of flips declined. Sales in the NYC metro area declined 11.1%, yet the share of flipping rose."
Florida’s reputation as a tax haven--the state is attracting buyers from areas like New York and New Jersey with high income and property taxes—may be behind the drop.
A lot of demand shifted to Miami from high tax areas, so there was a slight uptick in demand outpacing supply," Mr. Vivas said. "It’s constricting the amount of inventory and how much can be flipped."
Furthermore, he added, Miami’s stock of properties over $1 million is lower than that of cities like L.A., and many flips happen with homes under that threshold.
The trend of lower-price homes being more frequently flipped may also ring true in the New York City area: an April 2018 report from the Center for NYC Neighborhoods found that house flipping was common in the city’s most affordable neighborhoods, and that 34% of homes flipped in 2017 were in foreclosure.
According to Realtor’s data, only 150 properties above the $1 million mark in New York City were flipped in 2018, an increase of 0.6% from 96 homes in 2017.
Predictions for 2019With a slowdown anticipated for luxury real estate markets in 2019, it’s possible that home flipping, too, could begin to taper off. Changes to the U.S. tax code enacted last year, in particular, could make investors reluctant to make any large purchases this year.
"Buyers and sellers are adjusting their expectations,: Mr. Vivas said. "We’re already seeing a lot of that with price reductions, and increases in the amount and types of price cuts happening above the $1 million mark."
The data on house flipping is limited, he added, so it’s important to weigh other indicators when considering a new investment.
Overall, Mr. Arana said, he expects no big surprises in 2019.
"People are talking about a big bubble, but I don’t think it will be like 2008—the fundamentals are too strong for that," he said. "We want an adjustment [from the faster pace of previous years.] That’s healthy."