For the second quarter in a row, home flipping was on the rise as investors look to take advantage of quickly rising home prices. However, they’re not seeing higher profits from their flips.
Home flipping comprised 5.7% of all home sales in the third quarter, up from 5.2% a year ago, according to the “2021 U.S. Home Flipping Report” released by ATTOM Data Solutions. The typical raw profits remain below where they were a year ago, and profit margins have decreased to their lowest point since early 2011, the report notes.
Researchers define a house flip as an arms-length transaction that occurred in the purchase and sale of the same property within the last 12 months.
Profit margins declined in the third quarter as prices on flipped homes continued to rise more slowly than they did compared to investors’ original purchase price of the properties, researchers note.
In the third quarter, the gross profit on typical home flipping transactions—the difference between the median sales price and the median paid by investors—was at $68,847. That is down 1.6% compared to the $70,000 level recorded in the third quarter of 2020.
The decrease in the typical profit margin from the third quarter of 2020 to the same period this year was the largest annual drop since early in 2009 when the housing markets were reeling from the Great Recession, researchers note.
Still, investors are netting about a 32.3% return on investment compared to the original acquisition price.
“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,” says 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.”
Here are some additional insights from the latest home flipping report:
- The median $281,847 resale price of homes flipped in the third quarter generated a gross flipping profit of $68,847 above the median investor purchase price of $213,000.
- The markets with the largest returns on investment during the third quarter on home flips were in: Buffalo, N.Y. (ROI of 103.6%); Oklahoma City, Okla. (127.6%); Florence, S.C. (125.8%); Pittsburgh, Pa. (124.6%) and Scranton, Pa. (123.2%).
- The metro areas with the smallest profit margins on a typical home flip in the third quarter were: Laredo, Texas (7.5% return); Boise, Idaho (8%); Gulfport, Miss. (8.4%); Lubbock, Texas (10%); and Portland, Ore. (10.1%).
- Homes flipped in the third quarter took an average of 147 days to complete the transactions, the shortest turnaround in more than a decade.