House flipping, an activity that has been in decline over the last three years, is once again on the rise in the United States, and some analysts are of the view that it is actually a positive thing for the real estate market as a whole. (For related reading, see: Commercial Real Estate's $90B Debt Crunch.)
A new research report published by the online property listing platform Trulia revealed that flipping accounted for 6.1% of all home sales in the country in 2016. That figure is up 0.8% from the previous year. For the purpose of the report, properties that were sold in at least two arm’s length transactions during a 12-month period were defined as a flip.
The Market Benefits
Although house flippers paid a role in the creation of the 2008 financial crisis, it is important to remember that responsible flipping does actually benefit the market. (For more, see also: Flipping Houses: Is It Better Than the Buy and Hold Strategy?)
The Trulia report, written by economist Ralph McLaughlin, correctly points out the fact that house flippers are usually able to sell their properties at a price higher than what they purchased it for because they tend to make significant improvements to those houses. This ultimately helps to raise the quality of homes that are available for sale in the market.
“Though flipping in the U.S. has reached a new peak, we don’t think the housing market is about to flip out.” McLaughlin explained to Investopedia. “This is because our analysis suggests that it is much more likely that investors are actually adding value to the homes they are flipping through added improvements, rather than purely speculating on price appreciation.”
What's Causing This?
There are many factors that have caused the volume of house flips to increase. One of the biggest factors is the fact that property values continue to rise rapidly throughout the country. This provides flippers with a sort of safety net on their investments because they need not spend heavily on house improvements in order to make a decent return on a resale.