Canada's housing market is complex and with homes becoming increasingly unaffordable, people are often looking for someone to blame. Home flippers are a frequent target, and so we took a look at the data to see whether or not this is fair. We looked at all homes in the Greater Toronto Area that sold more than once since October 2018, and the results might be surprising.
Our approach
We are looking at all homes sold more than once in the ~ three year period (henceforth referred to as "flips"). This is regardless of whether there were renovations or the home was relatively unchanged since the previous sale.
Our dataset only consists of public sales.
When we refer to gains and losses, we simply mean the difference from the previous sale price. There are renovation and transaction costs to consider, which can significantly reduce the profit on a sale.
How much home flipping is really happening?
We found that there were approximately 16,000 homes that were sold more than once since October 2018 in the Greater Toronto Area (3,900 in Toronto). There have been approximately 360,000 home sales during this timeframe, meaning that only 4.4% of sales occurred during the first three years of ownership. Out of the 16,000 flips, only 4% occurred within the first three months of ownership and 65% occurred after holding for at least one year. As this represents such a small percentage of total sales, it is clear that flipping activity is not a significant driver of home prices. Also consider that many of these sales would be people who need to sell their primary residence due to personal reasons or life changes, and not simply to make a profit.
How much are people making by flipping homes?
We calculated that 95% of flips were at a higher price than the previous sale, while 4% were lower and 1% were the same as the previous purchase price. Below we can see the median and average result of the flips, which is quite substantial given that 35% of the activity occurred within one year of ownership.
As shown in the chart below, 47% of the flips resulted in gains greater than 30%.
Conclusion
While flipping may not be as common as you expected, some of those who participated have certainly made a large profit very quickly. We noted several instances where the sale price was more than $100,000 higher than the previous sale price - less than 30 days later. Flips after twelve months of ownership frequently saw gains exceeding $200,000. There is a major issue in regards to wealth inequality when those with capital can passively earn 2-3 times the median income in a matter of months.
Home flipping in the Greater Toronto Area is too small to have a significant impact on prices, and policies to curb this activity likely won’t have any impact on prices. Afterall, it is much more likely that soaring prices drives flipping rather than vice-versa. The land transfer taxes in Toronto are significant, and prices need to rise substantially for a flip to be profitable on a net basis. Any effective policies in this realm should address excessive property hoarding, rather than those putting homes back on the market.