House Flipping and Market Crashes

David Goldsmith

All Powerful Moderator
Staff member
There is a famous story that Joseph Kennedy knew it was time to get out of the stock market when the shoe shine boy was offering him stock tips. In Real Estate whenever "everybody" thinks they can be a "flipper" it's a good sign the market is going to crash. There is even some evidence that the 2007 crash was caused at least in part because of rampant flipping:
House flippers triggered the US housing market crash, not poor subprime borrowers

The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.
Dark arts notwithstanding, that’s not what really happened, though.
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.

Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economistsStefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’t after the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.
So why were relatively wealthier folks borrowing so much?
Recall that back then the mantra was that housing prices would keep rising forever. Since owning a home is one of the best ways to build wealth in America, most of those with sterling credit already did. Low rates encouraged some of them to parlay their credit pedigree and growing existing home value into mortgages for additional homes. Some of these were long-term purchases (e.g. vacation homes, homes held for rental income). But as a Federal Reserve Bank of New York report from 2011 reveals (pdf, p.26), an increasing share bought with the aim to “flip” the home a few months or years later for a tidy profit.
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SOURCE: AUTHORS’ CALCULATIONS BASED ON FRBNY CCP/EQUIFAX DATA.
Share of mortgage balances held by borrowers with two or more mortgages (left panel) and only one mortgage (right panel) by quartile of the 8Q lagged Equifax Risk Score.
In early 2004, a little more than 10% of borrowers in the top three quartiles of the credit score distribution had two or more mortgages. By 2007, that had leapt to around 16% for borrowers in the middle half of the credit-score distribution, and around 13% among that top quartile. However, for the lowest quartile (i.e. subprime), only around 6% had more than one mortgage, rising to around 8% by 2007.
Clearly, richer borrowers were driving the trend. For instance, among prime borrowers, the growth in per capita mortgage balances held by investors was around 20 percentage points higher for those with the highest credit scores than those with the lowest.

Come 2007, investors accounted for 43% of the total mortgage balance for the top credit-score quartile. For the middle two quartiles, speculators were responsible for around 35% in 2007.
This set up a dangerous dynamic. The mortgages these prime borrowers were able to secure were much bigger than those taken out by poor homebuyers. Worse, speculators have less incentive to hold onto their extra homes than those who only own one home. So when the housing market started tumbling and the economy soon followed, they were much more willing to default and foreclose, as you can see in the chart below.

SOURCE: AUTHORS’ CALCULATIONS BASED ON FRBNY CCP/EQUIFAX DATA.
Investor share of 90+ days delinquencies (left panel) and foreclosures (right panel) by quartile of the 8Q lagged Equifax Risk Score.
This would explain why, as the researchers put it, “the rise in mortgage delinquencies is virtually exclusively accounted for by real estate investors.” The share of single-mortgage borrowers who couldn’t keep up on their loan payments barely budged between 2005 and 2008.
Recent research—particularly that by Antoinette Schoar, a finance professor at MIT Sloan—has been helping rewrite the received wisdom of the “subprime crisis” that has blamed the crisis on poor, reckless borrowers for the better part of a decade. Schoar’s work reveals that borrowing and defaults had risen proportionally across income levels and credit score, but that those with sounder credit ratings drove the rise in delinquencies. This new paper’s investigation into the habits of middle- and upper-income real estate speculators in the run-up to the crisis marks yet another chapter of the history books in desperate need of revision.
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Today, we are seeing tons of "Reality Television" shows about flipping (which if you really examine it's not hard to figure out the numbers they throw out are fabricated) and once again everyone thinks they can make easy money flipping properties. So of course the margins have gotten too thin to be profitable:
The first quarter of the year saw home-flipping activity keep rising but return on investment continue a three-year slide to fall to its lowest level since 2011, according to a report from real estate data provider Attom Data Solutions.
Attom found that 53,705 single-family homes and condominiums in the United States were flipped in the first quarter, accounting for about 7.5 percent of all home sales. That was the highest level since the second quarter of 2006.
Yet as home prices
rose

, increasing acquisition costs, flippers’ returns dropped back to where they were soon after the Great Recession.​
The median gross profit on a home-flip increased to $63,200 from $62,000 the previous quarter, but that was just 36.7 percent of the median purchase price, down from 39.5 percent in the fourth quarter of 2019 and 40.9 percent a year earlier.
“Home flipping has gradually taken up a larger portion of the housing market over the last couple of years,” said Attom’s chief product officer Todd Teta in a statement. “But profits are down and are lower than they’ve been since the dark days following the Great Recession, which is a sign that investors aren’t keeping up with price increases in the broader market.”

Perhaps offsetting the narrowing of margins, flippers are financing their purchases less often. The report found that the share of investors taking out loans to flip homes dropped to 40.5 percent from 44 percent in the last quarter of 2019 and from 46.4 percent last year.

The trend in all-cash deals for investment properties might continue as major mortgage providers
tighten

lending standards in response to the market shocks of the coronavirus pandemic.​
Tight credit also probably led more buyers of flipped homes to seek cheap credit backed by the Federal Housing Administration, which insures low-interest, low-down-payment mortgages. More than 15 percent of homes purchased in the quarter used loans backed by the agency, up from 14.6 percent in the fourth quarter and 13.5 percent in the first quarter of 2019.
Teta added that the coming months will be important for the home-flipping market. If home prices fall, flippers will get hit hard. So far, homeowners are in a
better financial position

than they were before the last recession and can ride out the pandemic without dropping prices and moving en mass.​
Source: Attom Data Solutions

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Each time there is a crash those flippers, who generally get involved with bigger and bigger deals on slimmer and slimmer margins, end up losing back everything they made on the way up and more on their last deal or two. I predict we are on the cusp of seeing this again.


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David Goldsmith

All Powerful Moderator
Staff member

‘Wholesaler’ home flippers prompt new regulations​

Advocacy groups say wholesalers dupe sellers into signing below-market contracts​

A new kind of house flipper has infiltrated low-income neighborhoods, prompting local governments and agencies to enact more restrictive rules on home flippers capitalizing on distressed homes.
Instead of buying and renovating homes and putting them back up for sale, wholesalers work to put homes under contract and sell to traditional flippers.
However, in the past year, Philadelphia and Oklahoma have required wholesalers to obtain a license, Bloomberg News reported. Arkansas and Illinois passed laws in 2017 and 2019, respectively, to increase regulations on wholesaling.

Advocacy groups and legal aid services allege that wholesalers dupe sellers into signing a contract for far less than market value and then profit off a sale.
Wholesalers are often novice investors that have taken advantage of low interest rates and historically low housing inventory during the pandemic. These flippers have become more popular since the founding of PropStream, a real estate data provider that can help track distressed properties.

Wholesalers also don’t hold real estate licenses, making it difficult for regulators to crack down on the practice.
“I don’t buy houses. I solve problems,” Scott Sekulow, a wholesaler in Atlanta, told the publication, adding he buys homes from clients who can’t afford home renovations or need cash quickly.

Other wholesalers said they were interested in improving neighborhoods and “revitalizing” housing, according to the report.
“If I know that gentrification is going to happen regardless, I would rather it be someone like me making money than some hedge fund,” said Duane Alexander, a software engineer in Atlanta who wholesales on the side. He made around $10,000 on selling a home at a premium to another investor.

Earnings on a fix-and-flip home were more than $66,000 in 2020 — the highest since 2005. Before the pandemic, house flippers weren’t seeing huge returns, but activity remained strong.

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David Goldsmith

All Powerful Moderator
Staff member

Home Flipping Rate and Gross Profits Decline Across U.S. in First Quarter of 2021​

ATTOM, curator of the nation’s premier property database, today released its first-quarter 2021 U.S. Home Flipping Report showing that 32,526 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented only 2.7 percent of all home sales in the first quarter of 2021, or one in 37 transactions – the lowest level since 2000.
 

David Goldsmith

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Profit margins on fixer-uppers fall to 10-year low​

Housing market’s slowing growth to blame for home flippers​

The hot housing market made it a boon to flip homes. But with buyers beginning to ease up, and sellers of even dilapidated homes demanding top dollar, investors in fixer-uppers are seeing profit margins sink.
Their return on investment the second quarter came in at less than 34 percent of the original home price, according to a study by Attom Data Solutions. It’s the lowest profit margin for home flips since 2011, Inman reported.
The return on investment dropped almost 4 percentage points from the first quarter. It also dropped 7 percentage points from the second quarter of 2020, the first full quarter of the pandemic.
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The reason behind the slipping profit margins is the stabilization of the housing market, which had surged in the first year of the pandemic. Although housing prices are still growing, they are no longer climbing at such a rapid rate.

The median price of a flipped home sold in the second quarter was up 11 percent from the first quarter and 19 percent year-over-year. When the same flipped homes were bought, the median price was up almost 14 percent from the previous quarter and 25 percent year-over-year.
Another factor in the profit-margin drop may be that the percentage of homes being sold as flips increased from the first quarter, meaning fewer flips are low-hanging fruit. Home flip sales made up 4.9 percent of all sales in the second quarter, a rise from 3.5 percent the previous quarter, when home flips were at a two-decade low.

Investors are increasingly looking at fixer-uppers, hoping to turn a quick buck on a property that typically produced an 8 to 12 percent yield. But the supply of fixer-uppers available has been hampered by the rise in home prices, cutting off a pipeline of homes that usually become available for investors after they are foreclosed on.
 

David Goldsmith

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Staff member
Home Flipping Profit Margins Drop Again Across U.S. in Third Quarter of 2021 Even as Flipping Activity Keeps Rising

Q3 2021 U.S. Home Flipping Trends Chart

Nationwide Home-Flipping Rate Rises for Second Straight Quarter; Raw Profits on Home Flips Also Increase to Near-Record Levels in Third Quarter; But Typical Profit Margins on Flips Decline Again, to Lowest Point in More Than 10 Years
IRVINE, Calif. – Dec. 16, 2021 — ATTOM, curator of the nation’s premier property database, today released its third-quarter 2021 U.S. Home Flipping Report showing that 94,766 single-family houses and condominiums in the United States were flipped in the third quarter. Those transactions represented 5.7 percent of all home sales in the third quarter of 2021, or one in 18 transactions, a figure that was up for the second quarter in a row after a year of declines. The latest total marked an increase from 5.1 percent, or one in every 20 home sales in the nation, during the second quarter of 2021, and from 5.2 percent, or, or one in 19 sales, in the third quarter of last year.
But the report also shows that typical raw profits remained below where they were a year ago and, more importantly, profit margins dipped to their lowest point since early 2011.
Among all flips nationwide, the gross profit on typical transactions (the difference between the median sales price and the median paid by investors) stood at $68,847 in the third quarter of 2021. While that was up 2.7 percent from $67,008 in the second quarter of 2021, it was 1.6 percent less than the $70,000 level recorded in the third quarter of 2020.
Profit margins, meanwhile went down for the fourth quarter in a row, as the typical gross-flipping profit of $68,847 in the third quarter of 2021 translated into just a 32.3 percent return on investment compared to the original acquisition price. The national gross-flipping ROI was down from 33.2 percent in the second quarter of 2021 and from 43.8 percent a year earlier, to its lowest point since the first quarter of 2011.
The decrease in the typical profit margin from the third quarter of last year to the same period this year was the largest annual drop since early in 2009, when the housing market was crashing from the effects of the Great Recession.
Profit margins declined in the third quarter of 2021 as prices on flipped homes continued to rise more slowly than they did when investors originally bought their properties.
Specifically, the median price of homes flipped in the third quarter of 2021 shot up to another all-time high of $281,847. That was up 4.8 percent from $269,000 in the second quarter of 2021 and 22.5 percent from $230,000 a year earlier. The annual increase stood out as the largest for flipped properties since 2005 while the quarterly gain was the second biggest since 2015.
But the latest resale price run-ups again failed to surpass increases that investors were absorbing – 5.4 percent quarterly and 33.1 percent annually – when they bought the homes that were sold in the third quarter of this year. That gap – prices rising less on resale than on purchase – led to profit margins dropping again.
The price surges on both sides of flipping deals came as the decade-long housing-market boom in the United States continued throughout the nation during the third quarter of 2021. Prices kept spiking as a glut of buyers largely unscathed by the Coronavirus pandemic continued chasing an already tight supply of homes. Buyers have flooded the market since the pandemic hit early in 2020, drawn in large part by 30-year home-mortgage rates that dipped below 3 percent and a desire among many to escape virus-prone areas and get space for developing work-at-home lifestyles.
“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.”
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Home flipping rates up in three-quarters of local markets
Home flips as a portion of all home sales increased from the second quarter of 2021 to the third quarter of 2021 in 142 of the 195 metropolitan statistical areas analyzed in the report (73 percent). While rates commonly rose by less than one percent across the country, they reached levels that generally reflected percentages seen throughout most of the past decade. (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 2021.)
Among those metro areas, the largest flipping rates during the third quarter of 2021 were in Ogden, UT (flips comprised 9.5 percent of all home sales); Phoenix, AZ (9.5 percent); Salisbury, MD (9.3 percent); Salt Lake City, UT (9.3 percent) and Laredo, TX (9.2 percent).
Aside from Phoenix and Salt Lake City, the highest flipping rates during the third quarter of 2021 in 53 metro areas with a population of 1 million or more were in Memphis, TN (9 percent); Oklahoma City, OK (8.8 percent) and Austin, TX (8.5 percent).
The smallest home-flipping rates in the third quarter were in Honolulu, HI (0.8 percent); Portland, OR (2.5 percent); Rochester, NY (2.5 percent); Manchester, NH (2.7 percent) and Santa Rosa, CA (2.7 percent).
Typical home flipping returns decrease in half of markets
The median $281,847 resale price of homes flipped nationwide in the third quarter of 2021 generated a gross flipping profit of $68,847 above the median investor purchase price of $213,000. That resulted in a 32.3 percent profit margin.
Profit margins dipped from the second quarter of 2021 to the third quarter of 2021 in 92 of the 195 metro areas with enough data to analyze (47 percent).
The biggest declines came in Fargo, ND (ROI down from 196.5 percent in the second quarter of 2021 to 107.2 percent in the third quarter of 2021); Trenton, NJ (down from 117.6 percent to 45 percent); Oklahoma City, OK (down from 192.1 percent to 127.6 percent); Omaha, NE (down from 143.3 percent to 95.3 percent) and Macon, GA (down from 79.5 percent to 33.5 percent).
Markets with the largest returns on investment during the third quarter of 2021 on typical home flips were Buffalo, NY (ROI of 130.6 percent); Oklahoma City, OK (127.6 percent); Florence, SC (125.8 percent); Pittsburgh, PA (124.6 percent) and Scranton, PA (123.2 percent).
Aside from Buffalo, Oklahoma City and Pittsburgh, the largest investment returns in the third quarter among metro areas with a population of at least 1 million were in Baltimore, MD (90.6 percent) and Philadelphia, PA (88.7 percent).
Metro areas with the smallest profit margins on typical home flips in the third quarter of 2021 were Laredo, TX (7.5 percent return); Boise, ID (8 percent); Gulfport, MS (8.4 percent); Lubbock, TX (10 percent) and Portland, OR (10.1 percent).
Raw profits still highest in the West and Northeast; lowest in the Midwest and South
The highest raw profits on median-priced home flips in the third quarter of 2021, measured in dollars, were again concentrated among western and southern metro areas. Among metros with enough data to analyze, nine of the top 10 were in the West and Northeast, led by San Jose, CA (typical gross profit of $213,000); Honolulu, HI ($176,070); Fargo, ND ($166,458); Salisbury, MD ($145,000); and Baltimore, MD ($145,000).
At the opposite end of the range, 23 of the 25 lowest raw profits on typical deals were spread across the South and Midwest. The smallest were in Gulfport, MS ($14,579 profit); Laredo, TX ($15,281); Beaumont, TX ($16,850); Lubbock, TX ($17,725) and Huntington, WV-Ashland, KY ($18,400).
Home flips purchased with cash up slightly
Nationally, the portion of homes flipped in the third quarter of 2021 that had been purchased with cash by investors increased to 60.4 percent, up from 59.4 percent in the second quarter of 2021, and up from 57.7 percent in the third quarter of 2020. Meanwhile, 39.6 percent of homes flipped in the third quarter of 2021 had been bought with financing. That was down from 40.6 percent in the prior quarter, and down from 42.3 percent a year earlier.
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 2021 that had been purchased with cash by investors were in Buffalo, NY (86.1 percent); Cleveland, OH (82 percent); Pittsburgh, PA (82 percent); Detroit, MI (81.9 percent) and Cincinnati, OH (80.1 percent)
Average time to flip nationwide at shortest level since 2010
Home flippers who sold properties in the third quarter of 2021 took an average of 147 days to complete the transactions, the smallest turnaround time since the third quarter of 2010. The latest number was down from an average of 148 in the second quarter of 2021 and 189 in the third quarter of 2020.FHA buyers continue to purchase historically low portion of flipped homes
Of the 94,766 U.S. homes flipped in the third quarter of 2021, only 7.8 percent were sold to buyers using loans backed by the Federal Housing Administration (FHA), up slightly from 7.6 percent in the prior quarter but down from 13.7 percent in the third quarter of 2020. That latest figure marked the second lowest portion since the fourth quarter of 2007.
Among the 195 metro areas with a population of at least 200,000 and at least 50 home flips in the third quarter of 2021, those with the highest percentage of flipped properties sold to FHA buyers — typically first-time home buyers — were Hagerstown, MD (23.5 percent); Laredo, TX (22 percent); Reading, PA (20.2 percent); Allentown, PA (20 percent) and Yuma, AZ (19.7 percent).
Only 64 counties have home-flipping rate of at least 10 percent
Home flips accounted for more than 10 percent of all home sales in just 64 of the 1,123 counties around the U.S. with at least 10 home flips in the third quarter of 2021. They were led by Camden County, NC (south of Norfolk, VA) (15.9 percent); Lumpkin County, GA (north of Atlanta) (15.1 percent); Logan County, KY (outside Bowling Green) (14.7 percent); Canadian County, OK (outside Oklahoma City) (14.4 percent) and Adams County, OH (east of Cincinnati) (13.4 percent).
 

David Goldsmith

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Staff member
Home Flips Increase But Profits Decline Across U.S. In 2021
Number of Homes Flipped in United States Rises to Highest Level in 15 Years; Profit Margins on Flipped Homes Drop at Unusually Fast Pace; Percentage of Flips Purchased with Cash Increases
IRVINE, Calif. – March 31, 2022 — ATTOM, a leading curator of real estate data nationwide for land and property data, today released its year-end 2021 U.S. Home Flipping Report, which shows that 323,465 single-family homes and condos in the United States were flipped in 2021. That was up 26 percent from 2020, to the highest point since 2006.
The report reveals that the number of home flips in 2021 was up from 257,091 in 2020 to a total not seen since nearly 334,000 homes were flipped by investors in 2006. Last year’s flips represented 5.5 percent of all home sales in the nation during 2021, down from 5.8 percent in 2020 and 6.1 percent in 2019.
But even as quick-turnaround sales by investors shot up, gross profit margins on home flips in 2021 sank to their lowest level in more than a decade after dropping at the fastest pace in more than 15 years.
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Homes flipped in 2021 typically generated a gross profit of $65,000 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 percent from $67,000 in 2020 and translated into just a 31 percent return on investment compared to the original acquisition price – the lowest margin since 2008. The latest ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 41.9 percent in 2020 and 40 percent in 2019. The decline in the ROI also marked the steepest drop since at least 2005, resulting in margins that were commonly down by 20 percentage points from the 51 percent peak over the past decade, hit in 2016.
U.S. Home Flipping Gross Profits & Returns Chart
“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” said Rick Sharga, ATTOM’s executive vice president of market intelligence. “Fewer flippers financed their purchases, so their cost of capital was lower. And it took less time to execute a flip, reducing holding costs, and suggesting that less extensive – and less expensive – repairs were needed to bring the properties to market. A lot of the mark-up on fix-and-flip properties historically has come from the value of those repairs, but so have a lot of the costs that reduce net profits.”
2021 Gross Flipping ROI by Price Range Chart
Investors saw their gross profit margins dip for the fourth time in five years as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties – 21.1 percent versus 31.3 percent. The decline in home-flipping profits may represent a rare crack in the foundation of the U.S. housing market, which otherwise boomed in 2021 both because of and in spite of the worldwide Coronavirus pandemic.
Throughout the two-year-old pandemic, a surge of buyers has flooded the market amid a confluence of key factors. Tops among them have been a combination of historically low mortgage rates and a desire of many households largely unscathed financially by the pandemic to trade densely populated virus-prone areas for the perceived safety and wider spaces offered by a single-family home and yard.
Home flipping rates down in slightly more than half of local markets; biggest drops in Northeast and West
Home flips as a portion of all home sales decreased from 2020 to 2021 in 110 of the 209 metropolitan statistical areas analyzed in the report (53 percent). Nine of the 10 biggest decreases in annual flipping rates among MSAs came in the Northeast and West, led by Honolulu, HI (rate down 83 percent); Atlantic City, NJ (down 73 percent); Manchester, NH (down 57.7 percent); Rochester, NY (down 48 percent) and Cedar Rapids, IA (down 47.8 percent). Metro areas qualified for the report if they had a population of at least 200,000 and at least 100 home flips in 2021.
Aside from Rochester, the biggest decreases in flipping rates in 2021 across MSAs with a population of 1 million or more were in Las Vegas, NV (rate down 37.2 percent); Minneapolis, MN (down 36.7 percent); Sacramento, CA (down 36.3 percent) and Philadelphia, PA (down 35.4 percent).
Home flipping rates increased from 2020 to 2021 in 99 metro areas with sufficient data to analyze (47 percent). The largest annual increases in 2021 in the home flipping rate came in Provo, UT (rate up 114.3 percent); Salt Lake City, UT (up 113.4 percent); Austin, TX (up 111.2 percent); College Station, TX (up 97.4 percent) and Ogden, UT (up 95 percent).
Aside from Salt Lake City and Austin, the biggest annual flipping-rate increases in MSAs with a population of 1 million or more were in San Antonio, TX (rate up 56.2 percent); Dallas, TX (up 34.4 percent) and Houston, TX (up 32.3 percent).
Share of home flips purchased with financing decreases to lowest level in three years
Nationally, the percentage of flipped homes purchased with financing decreased in 2021 to 38.7 percent, down from 41 percent in 2020 and from 39.9 percent in 2019. Meanwhile, 61.3 percent of homes flipped in 2021 were bought with all-cash, up from 59 percent in 2020 and from 60.1 percent two years earlier.
U.S. Home Flipping Acquisition Trends Chart
“In an environment where mortgage rates are rising as rapidly as they are today, investors buying with cash are at a distinct advantage over consumer homebuyers,” Sharga noted. “The combination of rising home prices, rising mortgage rates and rising inflation is undoubtedly creating affordability issues for many prospective buyers, so it’s possible that there will be less competition overall for the limited inventory of homes available for sale.”
U.S. Home Flipping Financing Trends Chart
Among metropolitan statistical areas with a population of 1 million or more and sufficient data to analyze, those with the highest percentage of flipped homes purchased by investors with financing in 2021 included Louisville, KY (55.6 percent); San Diego, CA (55.4 percent); Seattle, WA (52.6 percent); Portland, OR (48.6 percent) and San Francisco, CA (47.6 percent).
In that same group, the metro areas with a population of 200,000 or more that had the highest percentage of flips purchased with all cash included Tuscaloosa, AL (90.6 percent); Buffalo, NY (84.1 percent); Dayton, OH (82.8 percent); Detroit, MI (82.2 percent) and Canton, OH (82.1 percent).
Typical gross profits on home flips decline in 2021 after hitting 15-year high
Homes flipped in 2021 were sold for a median price nationwide of $275,000, with a gross flipping profit of $65,000 above the median original purchase price paid by investors of $210,000. That national gross-profit figure was down from a 15-year high of $67,000 in 2020 but still up from $60,000 in 2019.
Among the 53 metro areas in the U.S. with a population of 1 million or more, those with the largest gross-flipping profits in 2021 were San Jose, CA ($265,500); San Francisco, CA ($172,000); Seattle, WA ($149,950); San Diego, CA ($145,500) and Washington, DC ($139,555).
The lowest gross-flipping profits among metro areas with a population of at least 1 million in 2021 were in Kansas City, MO ($23,456); Houston, TX ($32,300); San Antonio, TX ($34,357); Dallas, TX ($40,800) and Atlanta, GA ($43,900).
Home flipping returns drop to 13-year low
With median resale prices on home flips rising more slowly in 2021 than they were when investors were buying properties, the gross profit margin on the typical flip in the U.S. last year fell to 31 percent – the lowest level since 2008. The 10.9 percentage-point drop from 2020 exceeded any decline since at least 2005.
Investment returns on median-priced home flips decreased from 2020 to 2021 in 186, or 89 percent, of the 209 metro areas analyzed.
Among metro areas with a population of 1 million or more, the biggest percentage-point decreases in profit margins in 2021 were in Cleveland, OH (ROI down from 101.5 percent in 2020 to 40 percent in 2021); Cincinnati, OH (down from 83.5 percent to 40 percent); St. Louis, MO (down from 71 percent to 39 percent); Columbus, OH (down from 70 percent to 40 percent) and Providence, RI (down 65.7 percent to 36.4 percent).
In that same group of markets with populations of at least 1 million, the only increases in returns on investment on the typical sales were in Buffalo, NY (ROI up from 92 percent in 2020 to 98.9 percent in 2021); Raleigh, NC (up from 14.5 percent to 19.8 percent); Nashville, TN (up from 33.3 percent to 36.8 percent); Boston, MA (up from 29.1 percent to 31.3 percent) and Phoenix, AZ (up from 20.8 percent to 21.3 percent).
Among metro areas with a population of at least 1 million, the biggest profit margins in 2021 were in Pittsburgh, PA (100.6 percent); Buffalo, NY (98.9 percent); Philadelphia, PA (92.3 percent); Baltimore, MD (81.3 percent) and Virginia Beach, VA (76.6 percent). The smallest were in Kansas City, MO (12.3 percent); Salt Lake City, UT (13.9 percent); Houston, TX (14 percent); Dallas, TX (16.1 percent) and San Antonio, TX (17 percent).
Average time to flip nationwide down to nine-year low
Home flippers who sold homes in 2021 took an average of 153 days to complete the flips, the lowest number since 2012. Last year’s average was down from 182 days for homes flipped in 2020 and 178 days in 2019.
Average Days to Flip By Year Chart
Percent of flipped homes sold to FHA buyers drops below 10 percent
Of the 323,465 U.S. homes flipped in 2021, just 8.2 percent were sold to buyers using a loan backed by the Federal Housing Administration (FHA). That marked the smallest percentage since 2007, and was down from 13.9 percent in 2020 and 14 percent in 2019.
Among the 209 metro areas with a population of at least 200,000 and at least 100 home flips in 2021, those with the highest percentage of flipped homes sold in 2021 to FHA buyers — typically first-time homebuyers — were Laredo, TX (26.5 percent); Yuma, AZ (22.5 percent); Visalia, CA (20.5 percent); New Haven, CT (19.9 percent) and Springfield, MA (18.9 percent).
Just 25 counties had a home flipping rate of at least 10 percent in 2021
Among 900 counties with at least 50 home flips in 2021, there were only 25 counties where home flips accounted for at least 10 percent of all home sales last year. The top five were McCurtain County, OK (northeast of Dallas, TX) (15 percent); Logan County, KY (north of Nashville, TN) (13 percent); Gilmer County, GA (north of Marietta) (12.4 percent); Fentress County, TN (northwest of Knoxville) (12.1 percent) and Greene County, GA (south of Athens) (11.7 percent).
Thirteen zip codes had a home flipping rate of at least 20 percent
Among 8,020 U.S. zip codes with a population of 5,000 or more and at least 10 home flips in 2021, there were 13 zip codes where flips accounted for at least 20 percent of all home sales, including six in Detroit, MI. The group with a flipping rate of at least 20 percent was led by 78701 in Travis County (Austin), TX (31.4 percent); 44730 in Stark County (Canton), OH (27.8 percent); 78705 in Travis County (Austin), TX (27.3 percent); 48205 in Wayne County (Detroit), MI (25.3 percent) and 48227 in Wayne County (Detroit), MI (23.1 percent).
High-level takeaways from fourth-quarter 2021 data:
  • There were 96,773 home flips in the fourth quarter of 2021 which represented a flipping rate of 6.8 percent.
  • The share of homes flipped in the fourth quarter of 2021 that were purchased by investors with financing represented 37 percent of all homes flipped in the quarter, down from 39.1 percent in the previous quarter and from 42.6 percent in the fourth quarter of 2020. The share purchased with cash rose to 63 percent, from 60.9 percent in the third quarter of 2021 and 57.4 percent in the fourth quarter of 2020.
  • The median gross-flipping profit on home flips in the fourth quarter of 2021 was $65,000, which represented a typical 28.3 percent return on investment (percentage of original purchase price). That was down from 31.1 percent in the previous quarter and from 43.6 percent in the same period of 2020.
  • Home flips completed in the fourth quarter of 2021 took an average of 154 days, down from 176 days in the fourth quarter of 2020.
 

David Goldsmith

All Powerful Moderator
Staff member
Signs of Speculation Emerge in the Home Flipping Market
 

David Goldsmith

All Powerful Moderator
Staff member

Home-flipping hits 22-year high, but profits narrow​

1 in 10 sales was a flip last quarter; Silicon Valley’s differentials were highest​

Home flippers are making more deals than ever. But they are making less money on each one.
Nearly 115,000 home flips took place during the first three months of the year, accounting for 9.6 percent of home sales — the highest rate since at least the start of the century, a report by Attom found.

In the previous quarter, flips only represented 6.9 percent of home sales. Flips’ market share has now increased for five straight quarters, and the most recent increase was the largest since at least 2000.
At the same time, flippers’ profit margins slipped.

“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,” said Attom’s Rick Sharga. “This is having a predictable impact on profit margins for investors.”

The profit on a typical flip fell to $67,000 in the first quarter, down 4.3 percent from $70,000 a year earlier. It was up 5.5 percent from the fourth quarter, though. The numbers do not reflect renovation and staging costs.
Profit margins — expressed as a percentage — declined for the sixth consecutive quarter. Typical flippers sold for 25.8 more in the first quarter than they had paid, down from 27.3 percent in the fourth quarter and 38.9 percent a year before.
The first-quarter differential was the lowest recorded since 2009, in the aftermath of the housing crash.
A reason for the slip in profit margins is the slowing growth of home prices, which are not rising as quickly as when flippers bought their properties. Still, the median price of homes flipped in the first quarter was $327,000, an all-time high.

The largest flipping rate of the first quarter among the 191 metro areas analyzed was in Phoenix: 18.7 percent of all home sales. Olympia, Washington, was on the other end of the spectrum with flips representing only 4.4 percent of sales.
The market with the best profit margin was Scranton, Pennsylvania, at 115.5 percent. The lowest was in Boise, Idaho — just 4.4 percent.
San Jose had the highest raw differential between acquisition and sale price: $420,000. San Francisco ranked second at $220,000.
Home flippers took an average of 162 days to complete sales of their properties in the first quarter, below historic averages, but up from 154 days in the fourth quarter and 157 days in 2021’s first quarter.
 
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