ATTOM, a leading curator of land, property, and real estate data, today released its year-end 2022 U.S. Home Flipping Report, which shows that 407,417 single-family homes and condos in the United States were flipped in 2022. That was up 14 % from 357,666 in 2021, and up 58 % from 2020, to the highest point since at least 2005.
The report reveals that the number of homes flipped by investors last year represented 8.4 % of all home sales, also the largest figure since at least 2005. The latest portion was up from 5.9 % in 2021 and 5.8 % in 2020.
But even as quick buy-renovate-and-resell turnarounds by investors shot up, gross profit margins on home flips in 2022 sank to their lowest level since 2008 following the second major drop in two years.
Homes flipped in 2022 typically generated a gross profit of $67,900 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 % from $70,000 in 2021 and translated into just a 26.9 % return on investment compared to the original acquisition price. The latest nationwide ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 32.6 % in 2021 to 41.9 % in 2020.
Investors saw their profit margins drop for the fifth time in the past six years as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties – 12 % versus 17 %.
The decline in home-flipping profits in 2022 continued to cast a negative light on a niche of the growing U.S. housing market but also struggled to figure out how to profit from changing price trends.
The latest drop-off came during a year when the nation’s decade-long home-price runup began to stall, leading to the weakest annual gains in three years and even a decline in the second half of 2022. That happened as rising home mortgage rates, consumer price inflation and other forces cut into what home seekers could afford, reducing demand and cutting into prices investors could get on resale. But profits for home flippers had begun diminishing in 2017 even as the broader housing market was booming.
“Last Year, home flippers throughout the U.S. experienced another tough period as returns took yet another hit. For the second straight year, more investors were flipping but found no simple path to quick profits,” said Rob Barber, chief executive officer at ATTOM. “Indeed, returns are now at the point where they could easily be wiped out by the carrying costs during the renovation and repair process, which usually accounts for 20 to 33 % of the resale price. This year will reveal more about whether investors find different ways to profit from home-flipping or take a step back and wait for conditions to improve.”
Home flips as a portion of all home sales increased from 2021 to 2022 in 216 of the 218 metropolitan statistical areas analyzed in the report (99 %). Among the 25 largest increases in annual flipping rates, 20 were in the South and West. They were led by Burlington, VT (rate up 283.7 %); Prescott, AZ (up 183.1 %); Bremerton, WA (up 182.7 %); Jackson, MS (up 176 %) and Honolulu, HI (up 172.6 %). Metro areas qualified for the report if they had a population of at least 200,000 and at least 100 home flips in 2022.
Among metropolitan areas with a population of 1 million or more and sufficient data to analyze, those with the highest %age of flipped homes purchased by investors with financing in 2022, included Boston, MA (53.7 %); San Diego, CA (51 %); Seattle, WA (50.8 %); Providence, RI (50.5 %) and San Jose, CA (50.1 %).
In that same group, the metro areas with the highest %age of flips purchased with all cash included Detroit, MI (84.7 %); Atlanta, GA (80.7 %); Buffalo, NY (80.6 %); Indianapolis, IN (77.4 %) and Cleveland, OH (77.1 %).
Homes flipped in 2022 were sold for a median price nationwide of $320,000, generating a gross flipping profit of $67,900 above the median original purchase price paid by investors of $252,100. That national gross-profit figure was down from $70,000 in 2021 (the high point since at least 2005) but still up from $67,000 in 2020.
Last year, the gross profit margin on the typical home flip in the U.S. fell to 26.9 % – the smallest investment return since at least 2005. The ROI on median-priced home flips nationwide has dropped 15 %age points since 2020 and is off by 24 points since 2016.
Margins fell last year as the median nationwide resale price on flipped homes increased just 12.3 %, from $285,000 in 2021 to $320,000 in 2022. That was less than the 17.3 % increase in the price investors were paying when they bought homes (from $215,000 to $252,100).
Of the 407,417 U.S. homes flipped in 2022, just 8.4 % were sold to buyers using a loan backed by the Federal Housing Administration (FHA). That was up slightly from 8 % in 2021 but remained down 13.9 % in 2020. It was less than one-third of the 27.4 % sold to FHA buyers in 2010.
“While the declining margin is certainly a cause for caution, it is important to remember that these numbers are somewhat backward-looking in that they reflect dispositions of properties that were acquired in 2021 or early 2022 amidst the Covid-induced bidding wars in many locales”, said Maksim Stavinsky, Co-Founder and President of Roc360. “On the other hand, it is encouraging that investors were able to clear in excess of four hundred thousand properties – the most ever – in an environment of rising interest rates, without a meaningful increase in project timelines.” Roc360 last week announced the closing of its asset acquisition of Finance of America Commercial, a business purpose loan originator, so it is continuing to bet on growth in the space.
Click here to read the full report from ATTOM, including charts.