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Home Flips Are Up, But Raw Profits Hit 13-Year Low

Jun 23, 2022
home flipping
Staff Writer

In a striking trend, profit margins slipped to their lowest point since 2009.

KEY TAKEAWAYS
  • This marks the highest level of home flips since at least 2000, up from 6.9%, or one in every 4 home sales in the nation during the fourth quarter of 2021. 
  • Profit margins have fallen for the sixth quarter in a row as typical gross-flipping profit of $67,000 translated into just a 25.8% return on investment compared to the original acquisition price.
  • ROI sits at the lowest point since the first quarter of 2009, when the housing market was slumping from the effects of the Great Recession.
  • Nationwide, 62.7% of homes flipped in the first quarter had been purchased by investors with cash.

ATTOM released its first-quarter 2022 U.S. Home Flipping Report showing that home flips are up in the first quarter, while profits have sunk to a 13-year low. 

The report shows 114,706 single-family houses and condominiums in the United States were flipped in the first quarter, representing 9.6% of all home sales, or one in 10 transactions. This marks the highest level of home flips since at least 2000, up from 6.9%, or one in every 4 home sales in the nation during the fourth quarter of 2021. 

However, raw profits on those deals remained below where they were a year ago. In a striking trend, profit margins slipped to their lowest point since 2009. 

“The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers, as evidenced by this quarter’s report, which shows that one of every 10 homes sold during Q1 was a flip,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation rates, and buyers have become more selective – and less willing to outbid other buyers for properties they’re interested in. This is having a predictable impact on profit margins for investors.”

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) stood at $67,000 in the first quarter of 2022. While that was up 5.5% from $63,000 in the fourth quarter of 2021, and represents the first increase since late 2020, it was 4.3% less than the $70,000 level recorded in the first quarter of 2021.

Profit margins have fallen for the sixth quarter in a row as typical gross-flipping profit of $67,000 translated into just a 25.8% return on investment compared to the original acquisition price. The national gross-flipping ROI was down from 27.3% in the fourth quarter of 2021 and from 38.9% a year earlier.

ROI sits at the lowest point since the first quarter of 2009, when the housing market was slumping from the effects of the Great Recession in the late 2000s. The latest return on investment also was less than half the peak of 53.1% for this century, which hit in late 2016.

Profit margins declined in the first quarter as resale prices on flipped homes continued to shoot up more slowly than they were when investors originally bought their properties. 

The median price of flipped homes in the first quarter reached another all-time high of $327,000, up 10.5% from $296,000 in the fourth quarter of 2021 and 30.8% from $250,000 a year earlier. Both increases stood out as the largest for flipped properties since 2000. 

Home flippers who sold properties in the first quarter took an average of 162 days to complete the transactions. 

Home-Flipping Rates Are Up

Home flips as a portion of all home sales went up since the fourth quarter of 2021 in 181 of the 191 metro areas analyzed in the report (95%). Rates went up quarterly by at least two percentage points in 99 of those metros (52%). Metro areas were included if they had a population of 200,000 or more and at least 50 home flips in the first quarter of 2022. 

Metros with the largest flipping rates in the first quarter of 2022 were in Phoenix, AZ (flips comprised 18.7% of all home sales); Charlotte, NC (18%); Tucson, AZ (16.2%); Atlanta, GA (16.1%) and Jacksonville, FL (16%).

In metros with a population of less than a million, he highest flipping rates were in Durham, NC (15.3%); Gainesville, FL (14.9%); Ogden, UT (13.9%); Clarksville, TN (13.4%) and Winston-Salem, NC (13.4%).

The smallest home-flipping rates among metros in this report were in Olympia, WA (4.4%); Portland, ME (4.6%); Salem, OR (4.7%); Syracuse, NY (4.7%) and Davenport, IA (4.9%).

Raw Profits By Region

The highest raw profits on median-price flipped homes in the first quarter of 2022 were concentrated among western and northeastern metro areas. Twelve of the top 15 were in those regions, led by San Jose, CA (typical gross profit of $420,000); San Francisco, CA ($220,000); Seattle, WA ($155,000); Bremerton, WA ($150,000); and Naples, FL ($145,000).

Meanwhile, 20 of the 25 lowest raw profits on typical home flips were spread across the South and Midwest. The smallest were in Syracuse, NY ($16,687 profit); Boise, ID ($18,662); Lubbock, TX ($19,057), College Station, TX ($19,833) and Amarillo, TX ($20,875).

Cash Is King

Almost two-thirds of flipped homes were purchased with cash by investors. Nationwide, 62.7% of homes flipped in the first quarter had been purchased by investors with cash. That is virtually unchanged from 6.9% in the fourth quarter of 2021, but up from 60.9% in the first quarter of 2021. Meanwhile, 37.3% of homes flipped in the first quarter had been bought with financing, which is about the same as the 37.1% portion in the prior quarter, but down 39.1% from a year earlier. 

“As interest rates continue to go up, cash buyers should be in an even greater position of competitive advantage in the fix-and-flip market,” Sharga noted. “It will be interesting to see if the percentage of cash purchases, and purchases made by larger, better capitalized investors, increases over the next few quarters.”

The highest percentage of flips in the first quarter of 2022 that had been purchased with cash were in Buffalo, NY (86.4%); Detroit, MI (84%); Tucson, AZ (78.1%); Cincinnati, OH (76.5 %) and Raleigh, NC (76.5%).

Resales To FHA Buyers Remains Low

Of the 114,706 U.S. homes flipped in the first quarter, 7.9% were sold to buyers using loans backed by the Federal Housing Administration (FHA). That’s down slightly from 8% in the prior quarter and down from 9.5% in the first quarter of 2021 —  making it the third lowest quarterly mark since 2007.

Metros with the highest percentage of flipped properties that sold to FHA buyers (typically first-time home purchasers) were in Visalia, CA (26.6%); Lake Charles, LA (23.2%); Springfield, MA (22.2%); Hagerstown, MD (22.2%) and Yuma, AZ (21.7%).

About the author
Staff Writer
Katie Jensen is a staff writer at NMP.
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