“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: House flipping is up to an eight-year high … but not in California!

Source: Attom Data Solutions

The Trend

U.S. homes were flipped 245,864 times last year — up 6.9% in a year at a pace equal to 6.2% of all sales, the highest since 2011. But in California, the 20,755 flips were down 0.9% from 2018 and 5.6% of all sales. Only 12 of the 45 states ranked had a bigger drop and the state’s flipping share was a mid-range No. 26.

The Dissection

If you think of the quick-selling “flipping” game … then flashback to the bubble mania of a decade-plus ago … you might feel a chill. In most of the U.S., flipping levels are way off from those days of made-for-TV peaks.

U.S. flipping in 2019 was 30% below 2005’s peak of 350,684 quick resales. In California, flipping ranks 60% below 2005’s peak of 52,376 quick resales. (Note: These are homes or condos involved in a pair of transactions within 12 months.)

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Flipping’s muted status in California is unlikely the result of some rare, real estate sanity. It’s most likely a symptom of few bargains to be found in California.

Let’s compare what flipped last year in California with the U.S.

Statewide, a typical 2019 flip was a 1,408-square-foot, 50-year-old residence. It was flipped for a median $445,000 — third-highest among the states — but it cost $351,500 — second highest — to acquire. Sure, that equals a $93,500 gross profit (before any costs), but that’s only a 27% simple return on investment — and only nine ranked states were lower. By the way, a typical California flip, buy to resale, took 182 days — a middling No. 23 quickest.

Nationally, flippers used a similar-sized but newer property (1,440 square feet, 39 years) that sold for a median $217,900 after being purchased for $155,000. That equaled a $62,900 gross profit, or a 41% return. And it took 178 days to flip it.

SoCal view

In Los Angeles and Orange counties, 5,638 homes were flipped last year, or 5.9% of all sales, the No. 31 share among the 50 largest metro areas. Last year’s flipping was down 3.6% from 2018, when only nine metros had bigger dips. Flipping was down 62% from 2005’s peak of 14,645 quick resales.

Typical L.A.-O.C. flip? 1,385-square-foot, 59-year-old residence, sold for a median $623,750, third-highest among the 50. Compared with the $489,500 purchase price, that equals a $134,250 gross profit or 27% return — 15th lowest. A typical flip took 189 days, only 12 metros were slower.

In Riverside and San Bernardino counties: 3,684 flips last year or 6.3% of all sales, No. 29 among the large metros, and down 0.5% from 2018, the No. 34 performance. This is off 67% from 2005’s peak of 11,247 quick resales.

And a typical Inland Empire flip? 1,537-square-foot, 37-year-old residence, sold for a median $350,000, No. 10 highest. The $270,000 purchase price means $80,000 in gross profit or a 30% return — 19th lowest. It took 177 days.

How bubbly?

On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ONE BUBBLE … and I would have said “no bubble here,” but it’s all-but-guaranteed that if California flippers had more opportunity, they’d be doing it more.

Flipping isn’t always bad. These investors provide liquidity to homebuying and they quickly upgrade properties. But this group does occasionally get, let’s say, too passionate about their buy-fix-sell opportunities.

Note that amid 2015’s real estate insanity, California represented 15% of all U.S. flipping. Last year it was just 8%. Such figures suggest that in an already tight California housing market, flippers are finding competition from wannabe homeowners to rental investors to the emerging “e-buyer” instant cash buyers. All of which makes flip properties even more difficult to find.

And for the California market, that’s a good sign.

But if you want to worry about flipping madness, and real estate angst can spread nationally, look to Texas where flipping jumped 15% to a record high 16,588 last year. Only eight markets tracked states had bigger jumps. Arkansas, North Carolina, West Virginia and Wyoming also had record numbers of flipped homes.

And the typical Lone Star flip? A 1,744-square-foot, 31-year-old residence, sold for a median $212,188 (No. 23 highest) after a $176,000 purchase. That left a $36,188 gross profit, or a 21% return. That’s below California and only four states were worse. And that flip took 175 days.

Limited profitability was noted by Todd Teta, Attom’s chief product officer. Nationwide margins are the thinnest since the Great Recession.