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Home-Flipping Profits Drop To Their Lowest In 10 Years

Katie Jensen
Dec 16, 2021

This marks the largest annual decrease in profit margins since early 2009 when the housing market crashed.

KEY TAKEAWAYS
  • The decrease in typical profit margins marks the largest and steepest annual drop since early 2009 when the housing market was crashing due to the effects of the Great Recession. 
  • Profit margins fell for the fourth quarter in a row as the typical gross-flipping profit of $68,847 translated to just 32.3% return on investment.
  • Despite low profit margins, the median price of flipped homes continues to ratchet up every quarter to record-high levels.
  • The latest resale price run-ups failed to surpass increases that investors were absorbing – 5.4% quarterly and 33.1% annually – when they bought the homes that were sold in the third quarter this year.

Today, ATTOM released its third-quarter 2021 U.S. Home Flipping Report showing that raw profits dipped to their lowest point in 10 years. 

Profit margins fell for the fourth quarter in a row as the typical gross-flipping profit of $68,847 translated to just 32.3% return on investment. The national gross-flipping return on investment was down from 33.2% in the second quarter of 2021 and down from 43.8% a year earlier, dropping to the lowest point since the first quarter of 2011. 

Among all flips nationwide, the gross profit of typical transactions stood at $68,847 in the third quarter of 2021. While that figure is slightly above $67,008 in the previous quarter, it was 1.6% less than the $70,000 record in the third quarter of 2020. 

The decrease in typical profit margins marks the largest and steepest annual drop since early 2009 when the housing market was crashing due to the effects of the Great Recession. 

Despite low profit margins, the median price of flipped homes continues to ratchet up every quarter to record-high levels. The median price of homes flipped in the third quarter of 2021 shot up to an all-time high of $281,847, up 4.8% from the median price last quarter and up 22.5% from the same quarter last year. This represents the largest annual increase for flipped properties since 2005, and quarterly gain was the second biggest since 2015. 

Unfortunately, the latest resale price run-ups failed to surpass increases that investors were absorbing – 5.4% quarterly and 33.1% annually – when they bought the homes that were sold in the third quarter this year. Because prices rose less on resale than on purchase, profit margins dropped again. 

“Home flipping produced another round of competing trends in the third quarter of this year as more investors got in on the action but got less out of it,” said Todd Teta, chief product officer at ATTOM. “It's clear that declining fortunes weren't enough to repel investors amid a typical scenario of 32 percent profits before expenses on deals that usually take an average of five months to complete. We will see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring them into the home-flipping business or start pushing them elsewhere.”

The metros with the largest flipping rates in the third quarter took place in Ogden, UT (flips comprised 9.5% of all home sales); Phoenix, AZ (9.5%); Salisbury, MD (9.3%); Salt Lake City, UT (9.3%) and Laredo, TX (9.2%).

The metros with the smallest flipping rates in the third quarter were Honolulu, HI (0.8%); Portland, OR (2.5%); Rochester, NY (2.5%); Manchester, NH (2.7%) and Santa Rosa, CA (2.7%).
Metros that had the biggest decline in profit margins from home-flipping were Fargo, ND, where return on investment was down from 196.5% in the second quarter of 2021 to 107.2% in the third quarter of 2021; Trenton, NJ, was down from 117.6% to 45%; Oklahoma City, OK, was down from 192.1% to 127.6%; Omaha, NE, was down from 143.3% to 95.3%; and Macon, GA, was down from 79.5% to 33.5%.

Metros that had the largest return on investment for the third quarter of 2021 were Buffalo, NY (ROI of 130.6%); Oklahoma City, OK (127.6%); Florence, SC (125.8%); Pittsburgh, PA (124.6%) and Scranton, PA (123.2%). 

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