Nationwide Home-Flipping Rate Drops for Second Straight Quarter; Typical Profit Margins on Flips Hit Lowest Point in 13 Years; Gross Profits on Home Flips Plummet at Fastest Pace Since 2009
ATTOM, a leading curator of real estate data nationwide for land and property data, today released its third-quarter 2022 U.S. Home Flipping Report showing that 92,422 single-family houses and condominiums in the United States were flipped in the third quarter. Those transactions represented 7.5 percent of all home sales in the third quarter of 2022, or one in 13 transactions. The latest portion was down from 8.2 percent, or one in every 12 home sales in the nation during the second quarter of 2022. But it was still up from 5.9 percent, 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 percent 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.”
The report shows that as home selling by investors decreased, typical gross profits on those deals also dropped in the third quarter, hitting their lowest point in almost three years. With the national housing-market boom stalling, gross flipping profits declined in the third quarter as well at the fastest quarterly pace since 2009. More importantly, profit margins on flips also fell precipitously during the third quarter of 2022, to a point not seen in 13 years.
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 percent from $76,000 in the second quarter of 2022 and down 11.4 percent 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 of this year after rising in the prior two quarters. The typical gross-flipping profit of $62,000 in the third quarter of 2022 translated into a 25 percent return on investment compared to the original acquisition price. That was down from 30.2 percent in the second quarter of 2022 and from 31.8 percent 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 percent in late 2016.
So large was the fall in the third-quarter that typical returns were less than 25 percent in nearly half the metropolitan areas around the nation with enough data to analyze, compared to just a third of them earlier in 2022.
Profit margins worsened in the third quarter of 2022 as median resale prices on flipped homes declined faster than they had previously when investors were buying homes.
Specifically, in the third quarter of 2022, the typical resale price on flipped homes declined to $310,000. That was down 5.5 percent from $328,000 in the second quarter of 2022, although still up 6.9 percent from $290,000 a year earlier.
The quarterly drop-off in median resale values was worse than the 1.6 percent 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 going down from the second to the third quarter of 2022.
The third-quarter woes for home flippers added to the growing list of signals that the nation’s decade-long housing market boom is over – or has at least stalled – after nearly tripling home values and sending profits and equity soaring.
“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.”
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 metropolitan statistical areas around the U.S. analyzed for this report (68 percent). Where rates declined, they mostly decreased by less than two percentages points. (Metro areas were included if they had a population of 200,000 or more and at least 50 home flips in the third quarter of 2022.)
Among those metros, the largest flipping rates during the third quarter of 2022 were in Phoenix, AZ (flips comprised 13.7 percent of all home sales); Spartanburg, SC (13.3 percent); Atlanta, GA (12.9 percent); Winston-Salem, NC (12.7 percent) and Gainesville, GA (12.6 percent).
Aside from Phoenix and Atlanta, the largest flipping rates among metro areas with a population of more than 1 million were in Memphis, TN (12.1 percent); Jacksonville, FL (11.8 percent) and Tucson, AZ (11.4 percent).
The smallest home-flipping rates among metro areas analyzed in the third quarter were in Honolulu, HI (1.6 percent); Davenport, IA (3.7 percent); Rochester, NY (4 percent); Ann Arbor, MI (4 percent) and Bridgeport, CT (4 percent).
Typical home flipping returns decline quarterly in four of every five metro areas
The median $310,000 resale price of homes flipped nationwide in the third quarter of 2022 generated a gross flipping profit of $62,000 above the median investor purchase price of $248,000. That resulted in a typical 25 percent profit margin.
Typical home flips generated less than a 25 percent profit in 91 of the 194 metros with enough data to analyze in the third quarter (47 percent). Profit levels were that low in just 32 percent of the metros reviewed in the second quarter of this year.
Moreover, profit margins decreased from the second to the third quarter of 2022 in 158 of the areas analyzed in the third quarter (81 percent) and were down compared to the third quarter of last year in 78 percent of those markets.
The biggest quarterly decreases came in Tallahassee, FL (ROI down from 95.3 percent in the second quarter of 2022 to 41.5 percent in the third quarter of 2022); Canton, OH (down from 71.6 percent to 21.9 percent); Salisbury, MD (down from 129.1 percent to 81.2 percent); Harrisburg, PA (down from 96 percent to 53.8 percent) and Evansville, IN (down from 53.9 percent to 15.3 percent).
Markets with the largest returns on investment for typical home flips completed during the third quarter of 2022 were Buffalo, NY (121.7 percent return); Pittsburgh, PA (116.9 percent); Scranton, PA (88.7 percent); Reading, PA (86.7 percent) and Salisbury, MD (81.2 percent).
Aside from Buffalo and Pittsburgh, the largest investment returns in the third quarter among metro areas with a population of at least 1 million were in Philadelphia, PA (77.5 percent); Baltimore, MD (75 percent) and Detroit, MI (68.3 percent).
Metro areas with the weakest returns on typical home flips in the third quarter of 2022 were Jackson, MS (0.4 percent loss); Honolulu, HI (0.3 percent loss); Boise, ID (0.1 percent profit); Ogden, UT (2 percent profit) and Santa Barbara, CA (3.2 percent profit).
Investors earn highest gross profits in South and Northeast
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 (typical gross profit of $198,983); San Jose, CA ($160,000); New York, NY ($145,000); Washington, DC ($140,000) and Baltimore, MD ($135,000).
The South also dominated the opposite end of the range, along with the West, as 14 of the 15 lowest gross profits, or losses, on typical home flips were spread across those regions. They weakest numbers were in Honolulu, HI ($2,232 loss); Jackson, MS ($913 loss); Boise, ID ($598 profit); Longview, TX ($7,757 profit) and Ogden, UT ($8,010 profit).
All-cash investing holds steady at two-thirds of the flipping market
Nationwide, 63.7 percent of homes flipped in the third quarter of 2022 had been purchased by investors with cash. That figure was about the same as the 63.3 percent level in the second quarter of 2022 and the 63.5 percent portion in the third quarter of 2021. Meanwhile, 36.3 percent of homes flipped in the third quarter of 2022 had been bought with financing. That was about the same as in the prior quarter (36.7 percent) and a year earlier (36.5 percent).
Among metropolitan areas with a population of 1 million or more and sufficient data to analyze, those with the highest percentage of flips in the third quarter of 2022 that had been purchased with cash were in Detroit, MI (79.5 percent); Cleveland, OH (78.6 percent); Atlanta, GA (78.1 percent); Buffalo, NY (78 percent) and Cincinnati, OH (76 percent).
Average time to flip nationwide slightly lower
The average time it took from purchase to resale on home flips dipped to 163 days in the third quarter after rising for three consecutive quarters. The latest figure – less the historical averages – was down from 166 days in the second quarter of 2022 but still up from 149 in the third quarter of 2021.
Investor resales to FHA buyers increase
Of the 92,422 U.S. homes flipped in the third quarter of 2022, 9.1 percent were sold to buyers using loans backed by the Federal Housing Administration (FHA). That was up from 7.6 percent in both the prior quarter and the third quarter of 2021.
Among the 194 metro areas with a population of at least 200,000 and at least 50 home flips in the third quarter of 2022, those with the highest percentage of flipped properties sold to FHA buyers — typically first-time home purchasers — were Elkhart, IN (29.8 percent); Brownsville, TX (24.1 percent); Modesto, CA (23.8 percent); Vallejo, CA (23.3 percent) and Springfield, MA (23.1 percent).
One in five counties again have home-flipping rates of at least 10 percent
Home flips accounted for at least 10 percent of all home sales in 224, or 21 percent, of the 1,086 counties around the U.S. with at least 10 flips in the third quarter of 2022. That was about the same as the 22 percent portion of all counties with enough data to measure in the second quarter of 2022. The leaders in the third quarter of this year were Franklin County, GA (north of Athens) (19.7 percent); Clayton County, GA (outside Atlanta) (19.4 percent); Hopkins County, TX (east of Dallas) (19.3 percent); Meriweather County, GA (south of Atlanta) (19 percent) and Lumpkin County, GA (north of Atlanta) (18.4 percent).
ATTOM analyzed sales deed data for this report. A single-family home or condo flip was any arms-length transaction that occurred in the quarter where a previous arms-length transaction on the same property had occurred within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property’s after-repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the third sale (purchase) price.
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