Home-flipping profits, sales get hammered

The Central Valley had the best returns for home-flippers

The home-flipping craze that grabbed the attention of do-it-yourselfers and those with dreams of get-rich-quick efforts with some sweat equity is hitting real-world reality.

Home-flipping activity and profit margins slipped in 2020, as flippers often bought at or close to record-high prices — and then sold for the smallest profit margins since 2011, according to ATTOM Data Solutions. (Third-quarter home-flipping figures also showed a struggling market.)

And California is among the states with the biggest crunch between the acquisition and sold price — and a significant slowdown in the home-flipping market, determined by homes bought and sold during the past year.

California had 19,040 homes flipped in 2020, an almost 9% decline compared to a year ago and off a whopping 57% from 2010, according to ATTOM. How much has the home-flipping market declined in the Golden State? Last year, home-flips were one-third the amount from the peak of 52,569 in 2005. 

Home-flippers “really had limited buying opportunities,” ATTOM chief product officer Todd Teta said during a recent webinar. “They get the benefits but also the challenges.”

Central Valley home-flippers cheer, those along the coast jeer 

That was clearly evident in California.

Home-flippers in the state paid an average of $378,000 to buy a home, and turned around and sold the property for $483,000 within a year — a hefty $105,000 profit. The almost 28% gross return on investment was better than a year earlier, but far from the national average of 42%. 

But the critical return on investment depends on the region. If you’re looking for the best gains, check out the Central Valley, from Bakersfield to Chico. 

All eight metro areas in the Central Valley exceeded the statewide ROI, including a head-turning 55% in Merced. Fresno, Visalia-Porterville, Chico and Bakersfield all topped returns of investment of at least 50%.

On the other end, Santa Barbara County — from Carpinteria to Santa Maria — had a paltry ROI of 1.6%, with home-flippers netting a profit of (gulp!) only $7,750.

San Jose had the largest gain in dollars at $274,000.

National home-flipping stats slide

ATTOM reports 241,630 homes were flipped nationwide in 2020, a 13.1% decline compared to 2019 — and the lowest level since 2016. Home-flipping accounted for 5.9% of home sales last year, down from 6.3% in 2019.

The average gross profit on flipped homes was $66,300 in 2020, a 6.6% increase from 2019 and the highest gross profit since 2005, the peak of the last housing bubble that popped with the Great Recession.

But the actual return on investment was 40.5% in 2020, down from 41.5% in 2019 and the lowest level since 2011, according to ATTOM. Thirty-two states had better gross return on investments than the 28% in California, including a 93% ROI in Pennsylvania. Twelve states boasted 60%-plus ROI gains in 2020.

“Last year was a banner year for the U.S. housing market, with the apparent exception of the home-flipping business, which saw its fortunes slide a bit more in 2020,” Teta says. “Home flippers did still make a nice profit on investments that generally take around six months to turn around — just not as much as they did in the previous few years. It’s too early to know if the small slide was a sign of weakness in the broader housing market or just a bump in the road. We will know much more as we gauge other key market metrics in the coming months.”

Home-flipping profits and return on investment by metro areas (ranked by ROI)
  • Merced: $98,000; 54.6%
  • Fresno: $86,000; 53.4%
  • Visalia-Porterville: $74,000; 52.5%
  • Chico: $91,250; 52%
  • Bakersfield: $70,000; 50%
  • Stockton-Lodi: $99,000; 44.8%
  • Vallejo-Fairfield: $121,000; 39.0%
  • Modesto: $90,000; 38.3%
  • Sacramento-Roseville: $95,000; 32.2%
  • San Diego: $147,750; 32.0%
  • San Jose: $274,000; 29.8%
  • Riverside-San Bernardino: $84,500; 29.1%
  • Los Angeles-Long Beach: $151,500; 28.9%
  • San Francisco-Oakland: $171,000; 27.2%
  • Oxnard-Thousand Oaks-Ventura: $133,750; 25.4%
  • Salinas: $115,000; 22.1%
  • Santa Rosa: $115,000; 21.3%
  • San Luis Obispo: $105,500; 20.3%
  • Santa Maria-Santa Barbara: $7,750; 1.6%
Mission Viejo is the ninth-safest city in California, and is one of five in Orange County that cracked the top 10 list. Bonandbon/Adobe Stock

Southern Orange County cities among the safest in the state

Crime is almost always a concern when consumers consider relocating, whether they are buying or renting. And Californians are more worried than those in many other states.

More than half (56%) of Californians are concerned about their safety, finishing among the top three states for fear of gun and police violence — and fifth overall for violent crime. Despite the concern, two of every five (40%) residents say they feel safe in California, according to SafeWise.  

California has a higher crime rate than the national average, but the state is actually safer today than in 2019, according to the Safest Cities report. Still, 12% of Californians have experienced a violent crime during the past year, and 16% were victims of a property crime.

However, the 50 safest cities in California boast crime rates below the national average, from first-place Danville to Baldwin Park at No. 50. And 22 of the state’s 50 safest cities reported no murders in 2020.

It’s worth noting that half of the 10-safest cities are next-door neighbors in southern Orange County — Rancho Santa Margarita, Aliso Viejo, Lake Forest, Laguna Niguel and Mission Viejo. (Nearby Irvine finished at No. 19). And six of the top 10 safest cities are in Orange County.

What are the most dangerous cities in the state? Avoid Oakland, Stockton, San Bernardino, West Hollywood and San Francisco, which continues to battle a climbing crime rate and causing some companies and residents to relocate.

The 10 safest cities in California, based on violent crime and property crime rates:
  1. Danville
  2. Rancho Santa Margarita
  3. Moorpark
  4. Rancho Palos Verdes
  5. Aliso Viejo
  6. Lake Forest
  7. Yorba Linda
  8. Laguna Niguel
  9. Mission Viejo
  10. Lincoln
California had more than 1 million foreclosures during the Great Recession. Jeff Turner/Fickr

A housing bubble after Covid and runup in prices? 

Worried about a housing bubble and a flood of foreclosures like during the Great Recession? Well, chances are very slim, at least in California.

The average California homeowner with a mortgage gained an impressive $55,000 in equity in 2020, easily the highest in the nation — and more than double the equity increase nationwide. 

And the state’s average homeowners with a mortgage has $447,000 in equity, again more than double the national figure of $200,000, according to CoreLogic. Only about one of every 50 California homeowners (2.2%) with a mortgage has less than 10% equity, among the lowest in the U.S. (Oregon has bragging rights at 2%).

Clearly, there are some homeowners in the state struggling, especially as the economy continues to recover from the Covid lockdown and the pandemic-prompted recession, but fewer were in forbearance at 5% in December compared to 9% in August.

So, there are far fewer financially strapped homeowners than just eight months ago, and many have some options to tap equity or, at the very least, sell their home for a nifty profit.

South Lake Tahoe is one of the hottest housing resort markets in the U.S. Asif Islam/Shutterstock

Fewer vacation loans for Fannie and Freddie

Fannie Mae and Freddie Mac are cutting back on how many second-home loans they purchase, possibly hurting the market for vacation and weekend homes.

Home sales in resort communities, such as Lake Arrowhead and South Lake Tahoe, have been the best in years during the Covid pandemic, according to the California Association of Realtors. But the near-record-low mortgage rates are coming to an end, as Fannie and Freddie limit their purchases of vacation and weekend homes to 7%.

Mortgages that cannot be sold to Fannie or Freddie carry higher interest rates — and larger mortgage payments. The decision could also affect investment properties.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, says the action allows the government to focus on its mission of providing affordable owner-occupied housing to low- and moderate-income Americans.

Higher rates = $225 more per month

Mortgage rates matter, a lot.

The current runup of long-term, fixed rates will add about $225 for the monthly mortgage payment, according to Fannie Mae. For some consumers, that’s the difference between buying or remaining renters.
The average mortgage rate has climbed from a modern-day record-low of 2.65% for the week of Jan. 7 to 3.13% on April 8. The figure is based on the median-home price of $700,000 and a 20% down payment — or $140,000.

Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.