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ATTOM: Home Flipping Declined During 3Q

Sarah Wolak
Dec 15, 2022
Home Flipping

The third quarter saw 92,422 single-family houses and condominiums in the United States flipped.

KEY TAKEAWAYS
  • House flipping transactions represented 7.5% of all home sales in the third quarter of 2022, or one in 13 transactions.
  • The home-flipping rate during the third quarter still stood at the third-highest level in the past decade, below the high point of 9.7% registered in the first quarter of 2022.

ATTOM on Thursday released its third-quarter 2022 U.S. Home Flipping Report, and it flipping experienced a slight drop. The third quarter saw 92,422 single-family houses and condominiums in the United States flipped, with those transactions representing 7.5% of all home sales in the third quarter of 2022, or one in 13 transactions. 

The latest portion was down from 8.2%, or one in every 12 home sales in the nation, during the second quarter of 2022. It was still up, though, from 5.9%, or one in 17 sales, in the third quarter of last year.

Despite the decline, the home-flipping rate during the third quarter of this year still stood at the third-highest level in the past decade, below the high point of 9.7% registered in the first quarter of 2022.

“This is a classic good news/bad news report for fix-and-flip investors,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “While flipping activity in the third quarter was among the highest on record, gross profits and profit margins declined significantly, reflecting the overall pricing weakness in today’s housing market.”

Gross Profit Decreased

Among all flips nationwide, the gross profit on typical transactions (the difference between the median purchase price paid by investors and the median resale price) decreased to $62,000 in the third quarter of 2022. That was down 18.4% from $76,000 in the second quarter of 2022 and down 11.4% from $70,000 in the third quarter of 2021. The latest profit figure stood at the lowest point since the fourth quarter of 2019, while the quarterly rate of decline marked the worst since early 2009.

Typical profit margins, meanwhile, sank during the third quarter after rising in the previous two quarters. The typical gross-flipping profit of $62,000 in the third quarter of 2022 translated into a 25% return on investment compared to the original acquisition price. That was down from 30.2% in the second quarter of 2022 and from 31.8% a year earlier. 

The typical third-quarter return on investment slumped to the lowest point since 2009 and was less than half the peak over the past decade of 53.1% in late 2016.

Profit margins on flipped homes worsened in the third quarter as median resale prices declined faster than they had previously when investors were buying homes. Specifically, in the third quarter the typical resale price on flipped homes declined to $310,000, down 5.5% from $328,000 in the second quarter of 2022.

The quarterly drop-off in median resale values was worse than the 1.6% decline in prices that recent home flippers were commonly seeing when they originally bought their properties. The price-change gap between buying and selling resulted in profit margins falling from the second to the third quarter of 2022.

“It’s apparent that fix-and-flip investors aren’t immune to the shifting conditions in the housing market,” Sharga noted. “With demand from buyers weakening, prices trending down over the past few months, and financing rates significantly higher than they were at the beginning of the year, flippers face a much more difficult environment today, and probably will in 2023 as well.”

ATTOM’s report also saw home flipping rates drop in two-thirds of local markets. Home flips as a portion of all home sales decreased from the second to the third quarter of 2022 in 132 of the 194 (68%) metropolitan statistical areas around the U.S. analyzed for this report. Where rates declined, they mostly decreased by less than 2 percentage points. 

Among those metros, the largest flipping rates during the third quarter were in Phoenix at 13.7%; Spartanburg, S.C., at 13.3%, and Atlanta at 12.9%. The smallest home-flipping rates among metro areas analyzed in the third quarter were in Honolulu at 1.6%; Davenport, Iowa, at 3.7%; and Rochester, N.Y., at 4%. 

Other Highlights

  • The median $310,000 resale price of homes flipped nationwide in the third quarter generated a gross flipping profit of $62,000 above the median investor purchase price of $248,000. That resulted in a typical 25% profit margin.
  • Typical home flips generated less than a 25% profit in 91 of the 194 metros with enough data to analyze in the third quarter (47%). Profit levels were that low in just 32% of the metros reviewed in the second quarter of this year.
  • Profit margins decreased from the second to the third quarter of 2022 in 158 of the areas analyzed in the third quarter, representing 81% of the metros.
  • The biggest quarterly decreases came in Tallahassee, Fla., with the return on investment down from 95.3% in the second quarter to 41.5% in the third quarter of 2022. 
  • On the flip side, the highest gross profits on median-priced home flips in the third quarter of 2022, measured in dollars, were concentrated in the South and Northeast regions of the country. Seventeen of the top 20 were in those areas, led by Salisbury, Md., with a gross profit of $198,983. Salisbury was followed by San Jose, Calif., at $160,000 and New York City at $145,000.

More takeaways from ATTOM’s report can be found here

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