The Latest on Home Flipping and FHA Buyers

Home flippers often claim that the renovations and repairs they do on homes before selling them preps the property for a new first-time homebuyer, but that’s becoming less and less the case.

According to new data from ATTOM Data Solutions, the percentage of home flips that were sold to homebuyers who secured financing through the Federal Housing Administration (FHA)—which are predominantly first-time homebuyers—dropped to 15.9 percent in the first quarter of 2018, a 10-year low.

Rising home prices have made home flipping a lucrative practice, as the total dollar volume of home flips has been more than $10 billion every quarter since 2016. But it’s also gradually priced out many of the first-time homebuyers home flippers claim to serve. The median price of a home flip rose to $215,000 in the first quarter of 2018, the highest since prior to the housing bust in 2008.

The FHA, a division of the Department of Housing and Urban Development (HUD), provides insurance on mortgages for qualified borrowers, typically people with lower credit scores or those without the means for a down payment. The FHA insures mortgages with as little as a 3.5 percent down payment. This helps expand credit to lower income buyers or first-time buyers.

FHA buyers aren’t always first-time homebuyers, and first-time homebuyers aren’t always FHA buyers, but there’s considerable overlap. So far in 2018, 82 percent of buyers who purchased single-family homes through the FHA were first-time buyers, according to the HUD.

So while the percentage of home flippers who sold to FHA borrowers isn’t a perfect measure for first-time homebuyers, it serves as a good barometer, particularly when looking at the general trend.

The percentage of home flippers who sold to FHA buyers fell below 5 percent during the housing bubble in 2005, as the same easy credit that inflated the bubble and caused it to burst made securing FHA insurance on a mortgage unnecessary; mortgage lenders were more than willing to offer financing to practically anyone with a pulse.

After the bubble burst in 2008 and mortgage lending ground to a halt, home flippers sales to FHA buyers peaked at 34 percent in the second quarter of 2010, as FHA insurance was one of the few ways to lure a lender into a mortgage.

The steadily declining rate at which home flippers sell to FHA buyers certainly has something to do with mortgage credit getting more relaxed over the past few years. If borrowers have other attractive financing offers, some will take it. But as home prices rise, so does the premium home flippers can charge, and many first-time buyers will inevitably get left behind.


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