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Home Flipping Rate And Profit Margins Decline

Katie Jensen
Jun 17, 2021

Home flipping and profit margins dropped amidst a housing boom, making conditions less favorable to investors.

KEY TAKEAWAYS
  • 32,526 single-family homes and condominiums were flipped in the first quarter, equating to 2.7% of all home sales or 1 in 37 transactions. This represents the lowest level of homes flipped since 2000. 
  • Between the first quarter and fourth quarter of 2020, the percentage of homes flipped fell from 7.5% to 4.8%, marking the largest decrease in home flips since at least 2000.
  • The gross profit on a typical home flip made $63,500 in the first quarter of 2021, down from $71,000 in the previous quarter.
  • Return on investment for a typical flipped home is 37.8% compared to the original acquisition price. In the fourth quarter of 2020, return on investment was 41.8% and 38.8% a year before that.

The 2021 U.S. Home Flipping Report from ATTOM shows 32,526 single-family homes and condominiums were flipped in the first quarter, equating to 2.7% of all home sales or 1 in 37 transactions. This represents the lowest level of homes flipped since 2000. 

Between the first quarter and fourth quarter of 2020, the percentage of homes flipped fell from 7.5% to 4.8%, marking the largest decrease in home flips since at least 2000. 

As the flipping rate continues to drop, profits and profit margins decline. The gross profit on a typical home flip made $63,500 in the first quarter of 2021, down from $71,000 in the previous quarter. However, that is still an improvement from $62,000 in the first quarter of 2020.

This downturn in gross profit from flips has caused profit margins to shrink. Return on investment for a typical flipped home is 37.8% compared to the original acquisition price. In the fourth quarter of 2020, return on investment was 41.8% and 38.8% a year before that. This quarter marks the lowest return on investment since the second quarter of 2011 when the economy was still feeling the aftereffects of the Great Recession. 

Todd Teta, chief product officer at ATTOM, said, “It's too early to say for sure whether home flippers indeed have gone into an extended holding pattern. But the first quarter of 2021 certainly marked a notable downturn for the flipping industry, with the big drop in activity suggesting that investors may be worried that prices have simply gone up too high.”

As profits and profit margins decrease, so does the median value of flipped homes. In the first quarter of 2021, the median value of flipped homes was $231,500, down 3.9% from the fourth quarter of 2020. This marks the first quarterly decrease in typical resale prices since the fourth quarter of 2018.  

Home flipping and profit margins dropped in the first quarter of 2021 amidst a housing boom, making conditions less favorable to investors. The median price for single-family homes and condominiums increased more than 10% across the nation last year as more house hunters jumped into the market. The price run-up may have built up home values to the point where they can flatten out over a 6 month period most investors need to renovate and flip homes.

"After riding the housing boom along with others for years, they now might be having second thoughts. Whether this is the leading edge of a broader market downturn is little more than speculation. But ATTOM will be following all market measures very closely over the coming months to find out,” Todd Teta added. 

To read the full 2021 U.S. Home Flipping Report, including charts and graphs, click the link provided. 

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