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House flipping is on the rise again in New York City. Analysis of the city’s housing sales data reveals that 2,826 1-3 family homes were flipped in 2017—a 8.6% increase from 2016, and more than any year in the past decade. By definition, flipping a home involves buying and selling it within one year of purchase. Flippers typically purchase homes at below market-value prices and sell them after performing renovations, usually for significant profit.
Number of flips vs. Average resale profit, 2003-2017. (Lylla Younes, Gothamist/WNYC)
Gothamist mapped house flipping in New York City by zip code for every year since 2003. Our analysis shows that the number of flips has been steadily increasing since 2011, returning to a level not seen since before the collapse of the subprime mortgage industry in 2007. The Center for NYC Neighborhoods recently published a report detailing this increase in flipping and the effects the practice can have on New York City’s most affordable neighborhoods. Caroline Nagy, the Director of Policy and Research at the Center, told Gothamist that house flipping today differs from pre-crash flipping in several important ways.
“What we saw [pre-crash] was that the people buying homes from flippers were less sophisticated home buyers,” Nagy said. “[Today] you need very good credit to get financing to purchase a home, and prices are much higher.” Nagy says this tends to suggest that the individuals purchasing flipped homes today tend to be much wealthier than before.
A Wall Street Journal article published earlier this month notes that several big financial players like Blackstone and Goldman Sachs are betting more on short-term transitional loans, the kind of loans flippers take out to renovate homes before reselling them. While these loans come at high interest rates to borrowers, analysis from Gothamist shows that flippers are earning significantly higher resale profits today than they did at the height of flipping in 2005. Nagy says this is because house flippers are targeting people at risk of losing their homes to foreclosure, many of whom are seniors and non-native English speakers.
“It’s more profitable [today] because they’re taking advantage of people. Whether you want to say they’re getting a great deal for themselves or ripping someone off, the result is the same.”
Click HERE for larger image. Number of flips vs. Average resale profit, 2003-2017. Lylla Younes, Gothamist/WNYC
The rise in house flipping is not unique to New York City. Attom Data Solutions, a company that analyzes nationwide real estate trends, has found significant increases in flipping in over seven metropolitan areas. Supporters of house flipping have argued that the practice has the potential to revitalize areas of the country that are in desperate need of investment.
But experts like Nagy argue that in a place like New York City, where affordable housing is scarce, flipping removes affordable homes from the housing stock and gentrifies lower-income areas. The maps that Gothamist generated indicate that both pre- and post-crash flipping were prevalent in many of the same neighborhoods: Jamaica, East New York, and Bed Stuy, among others.
“That’s where you have New York City’s lower income home owners,” Nagy said. “Where you have people who are struggling with the foreclosure crisis, people who are aging and struggling to figure out how they’re going to afford to age in place.”
Nagy says that the wealth transfer from communities of color to wealthy investors has real implications on the future of New York City’s neighborhoods.
“Because the higher the profits are for these investors, the lower the sales price is for the initial people selling,” Nagy said. “The investors are getting higher prices because they know the market and the market is really tight in New York City right now.”
Methodology:For this story, Gothamist used data from the NYC Department of Finance’s Annualized Sales Rolls. In processing the data, Gothamist counted a transaction as a “flip” for a given year if the property had been previously sold within a year of the sales date. All non-arm’s-length transactions were excluded from the analysis. Here, “arm’s length” refers to transactions in which the buyers and sellers act independently, having no relationship to each other.
To ensure the exclusion of non-arm’s length transactions, Gothamist excluded all sales that were (1) less than 100K, (2) less than five days apart, and (3) equal in value to the previous sale. Only homes in property tax class 1 (1-3 family homes) were included in the analysis. Gothamist chose to limit the analysis to this property tax class in order to exclude all coops and condos.