Home Flipping Declines In The U.S. In Q3 2022 As Investor Profits Hit A 13-Year Low.

IRVINE, CA—December 15th, 2022 — ATTOM, the nation's premier real estate data aggregator, has just issued its Q3 2022 U.S. Home Flipping Report, which shows that 92,422 homes in the United States were traded hands during that period. They accounted for 7.5% of all house sales in Q3 2022, or about 1 in every 13 closings. The most recent percentage is below the second-quarter 2022 level of 8.2 percent, which represented one in every twelve house purchases throughout the country. Still, that's an improvement from the 5.9 percent, or one in every 17 transactions, saw in the third quarter of 2017.

This year's third quarter house flipping rate was lower than the record high of 9.7 percent seen in the first quarter of 2022, but it was still the third highest in the prior decade.

According to Rick Sharga, ATTOM's senior vice president of market intelligence, "this is a typical good news/bad news report for fix-and-flip investors." The general price weakness in today's housing market was reflected in the fact that "although flipping activity in the third quarter was among the greatest on record, gross earnings and profit margins decreased dramatically."

The average gross profit on investor property sales fell to its lowest level in nearly three years in the third quarter, according to the data. As the national home market boom slowed, gross flipping earnings fell at the highest quarterly pace since 2009. Furthermore, during the third quarter of 2022, profit margins on flips dropped to a level not seen in 13 years.

The mean gross profit on a flip in the third quarter of 2022 was $62,000 (the difference between the median investor acquisition price and the median selling price). That was down 11.4% from the previous quarter's total of $70,000 and 18.4% from the second quarter of 2022's total of $76,000. Recent quarterly profit was the lowest since the fourth quarter of 2019, and the quarterly rate of fall was the worst since the beginning of 2009.

Meanwhile, standard profit margins fell during the third quarter of this year, following two consecutive quarterly increases. In the third quarter of 2022, the average gross profit from a flip was $62,000, which equated to a return on investment of 25%. It had been 31.8 a year earlier and 30.2 in the second quarter of 2022, thus this was a significant drop. The average ROI for the third quarter hit a new low not seen since 2009, and it was less than half of the late 2016 high of 53.1%.

In over half of the nation's metro regions with sufficient data to evaluate, average returns were less than 25% in the third quarter, down from 33% earlier in 2022.

During the third quarter of 2022, profit margins dropped as median resale prices on flipped homes fell more quickly than they did during earlier periods when investors were buying properties.

In particular, the mean selling price of flipped properties fell to $310,000 in the third quarter of 2022. That's down from the second quarter of 2022's $328,000 but up from the second quarter of 2021's $290,000.

Median selling prices fell by more than 1.6 percent from the beginning of the year, a bigger quarterly dip than previous house flippers were used to witnessing. During the second and third quarters of 2022, profit margins shrank as a direct result of the widening difference between purchasing and selling prices.

The third quarter's difficulties for home flippers are just one more indicator that the national housing market bubble, which has lasted for a decade and nearly tripled home values and sent earnings and equity rising, is finished or has at least halted.

The housing market is always changing, and it's clear that "fix-and-flip investors aren't immune to it," as Sharga put it. "Flippers confront a considerably more difficult climate now, and probably will in 2023 as well," the article states. "With demand from purchasers diminishing, prices moving down over the previous few months, and financing rates much higher than they were at the beginning of the year."

Flipping properties occurs less frequently in two-thirds of local marketplaces.

132 of the 194 MSAs in the United States studied in this analysis had a decline in the proportion of house flips to total sales between the second and third quarters of 2022. (68 percent). Rate reductions were typically less than two percentage points. (Regions with a population of at least 200,000 and 50 home flips in the third quarter of 2022 were considered metro areas.)

The highest rates of home flipping in the third quarter of 2022 were seen in the cities of Phoenix, Arizona (13.7 percent of all home sales were flips), Spartanburg, South Carolina (13.3 percent), Atlanta, Georgia (12.9%), Winston-Salem, North Carolina (12.7%), and Gainesville, Georgia (12.7 percent) (12.6 percent).

Cities with populations over a million, including Phoenix, Atlanta, Memphis, Jacksonville, and Tucson, had the highest rates of home flipping (11.4 percent).

Honolulu, HI (1.6%), Davenport, IA (3.7%), Rochester, NY (4%), Ann Arbor, MI (4%), and Bridgeport, CT (4.0%) had the lowest house flipping rates among the metro areas studied during the third quarter (4 percent).

Quarterly average house flipping profits fall in 80% of metro regions.

During the third quarter of 2022, the median selling price of properties countrywide was $310,000, resulting in a gross resale profit of $62,000 over the median investor acquisition price of $248,000. As a consequence, the standard 25% profit margin was achieved.

Ninety-one out of the nineteen-hundred-and-fourteen metros where we have sufficient data to draw conclusions from the third quarter had average profits from house flips of less than twenty-five percent (47 percent). Only 32% of the cities analyzed showed such low-profit levels in the second quarter of this year.

In addition, third-quarter 2022 profit margins fell from the previous quarter in 158 of the locations surveyed (81 percent) and in 78 percent of the markets compared to the same period a year earlier.

ROI dropped the most from the second to the third quarter of 2022 in Tallahassee, Florida (from 95.3% to 41.5%), Canton, Ohio (from 71.6% to 21.9%), Salisbury, Maryland (from 129.1% to 81.2%), Harrisburg, Pennsylvania (from 96%), and Evansville, Indiana (53.8%). (down from 53.9 percent to 15.3 percent).

The third quarter of 2022 had the highest returns on investment for average house flips in Buffalo, New York (121.7 percent), Pittsburgh, Pennsylvania (116.9 percent), Scranton, Pennsylvania (88.7 percent), Reading, Pennsylvania (86.7 percent), and Salisbury, Maryland (87.8 percent) (81.2 percent).

Investment returns in the third quarter were highest in Philadelphia, Pennsylvania (77.5%), Baltimore, Maryland (75%), and Detroit, Michigan (75%) among cities with populations of at least 1 million (68.3 percent).

Jackson, Mississippi (-0.4%), Honolulu, Hawaii (-0.3%), Boise, Idaho (-0.1%), Ogden, Utah (2.0%), and Santa Barbara, California (2.0%) had the lowest third-quarter 2022 returns on average house flips (3.2 percent profit).

Investors earn the highest gross profits in South and Northeast

The South and the Northeast reaped the greatest dollar-based gross gains from the resale of median-priced homes during the third quarter of 2022. Salisbury, Maryland (average gross profit: $198,983), San Jose, California ($160,000), New York, New York ($145,000), Washington, DC ($140,000), and Baltimore, Maryland ($135,000) accounted for seventeen of the top twenty.

Additionally, 14 of the 15 lowest gross earnings, or losses, on average house flips were dispersed between the South and the West. Honolulu, Hawaii, had the worst results ($2,232 loss), followed by Jackson, Mississippi ($913 loss), Boise, Idaho ($598 profit), Longview, Texas ($7,757 profit), and Ogden, Utah ($8,010 profit).

Two-thirds of the real estate flipping business continues to be funded by all cash investments.

In the third quarter of 2022, cash was used to buy 63.7% of all residences that were flipped by investors around the country. Similar percentages were seen in the second quarter of 2022 (63.3%) and the third quarter of 2021 (63.5%). In the meanwhile, during the third quarter of 2022, 36.3% of the properties that were flipped had been purchased using some form of finance. This was in line with the previous quarter (36.7%) and the same time period a year ago (36.7%). (36.5 percent).

Detroit, MI (79.5%), Cleveland, OH (78.6%), Atlanta, GA (78.1%), Buffalo, NY (78%), and Cincinnati, OH (78.1%) had the greatest proportion of flips acquired with cash in the third quarter of 2022, among metro areas with populations of 1 million or more and adequate data to examine (76 percent).

Nationwide average flip times decrease marginally

After increasing for three straight quarters, the median number of days it took to turn a profit on a house sale decreased to 163 in the third quarter. This most recent number is lower than the 166 days recorded in the second quarter of 2022 and the 149 days recorded in the third quarter of 2021, but it is still higher than the historical averages suggest it should be.

Resales by investors to FHA purchasers go up.

In the third quarter of 2022, 9.1 percent of the 92,422 properties resold in the United States were purchased with FHA-insured loans (FHA). The previous quarter's rate was 7.6 percent, and this quarter's rate is projected to be 8.2 percent.

Elkhart, Indiana (29.8%), Brownsville, Texas (24.1%), Modesto, California (23.8%), Vallejo, California (23.3%), and Springfield, Massachusetts (23.2%) had the highest percentage of flipped properties sold to FHA buyers (typically first-time home purchasers) 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. (23.1 percent).

One-fifth of all counties had home-flipping rates of at least 10 percent.

In the third quarter of 2022, house flipping accounted for at least 10% of all home sales in 224, or 21%, of the 1,086 counties in the United States with at least 10 flips. Comparatively, this represented around 22% of all counties in which sufficient data existed for measurement in Q2 2022. Third-quarter leaders were Georgia's Franklin County (north of Athens), Clayton County (outside Atlanta), Texas's Hopkins County (east of Dallas), Georgia's Meriweather County (south of Atlanta), Georgia's Lumpkin County (north of Atlanta), and Georgia's Hopkins County (19.3 percent) (18.4 percent).

Final Note

The information in this report was derived from an analysis of sales deeds performed by ATTOM. Any sale of a single-family house or condo that took place during the same quarter as another arms-length sale of the same property within the preceding year was considered a flip. Flipping veterans say that rehab expenditures and other expenses often range between 20 and 33 percent of the property's after-repair value, leaving a gross profit of between 5 and 15 percent. The gross profit from flipping was divided by the third selling (buy) price to derive the gross return on investment.