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Home flipping rates dip in third quarter

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Home flipping rates drop for third quarter of 2022

Image source: Bank Rate

Home: The real estate industry is among the most widely observed in the United States in 2022, with the market reaching different levels of highs and lows.

Recently, the housing market has been cooling quickly, making it harder for house flippers to make house profits.

The news

Gross flipping profit is the difference between the median purchase price paid by investors and the median resale price.

According to ATTOM, a real estate data provider, the gross flipping profit dropped to $62,000 in the third quarter.

The profit is down 18.4% from the second quarter and down 11.4% year-over-year.

It also represents the smallest profit since the conclusion of 2019 and the fastest quarterly drop since 2009.

As gross profits dropped, the return on investment also fell from 30% to 25% in the previous quarter.

While it wasn’t bad news, the drop isn’t good either.

However, ATTOM notes that the size of the profits isn’t something to focus on but how quickly they’re dropping.

Read also: Mortgage application rises as interest rates decline

Home flips

Shrinking profits and higher mortgages are hurting affordability for prospective buyers.

As a result, the share of flipped home sales also dropped.

There were over 7.5% home flips in the third quarter – a historically high number.

However, it was down from 8.2% in the second quarter.

Flips are defined as homes bought and sold in a 12-month period.

They make up a 5.9% share of all home sales in the third quarter of 2021.

So far, home prices have been weakening quickly, and renovation costs are still high.

Rick Sharga, the executive vice president of ATTOM’s market intelligence, released a statement, saying:

“It’s apparent that fix-and-flip investors aren’t immune to the shifting conditions in the housing market.”

“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 prices

2022 home prices are still higher than they were last year, but each month sees the gains shrinking dramatically.

Mortgage rates have also come down from their recent highs.

Despite the good news, mortgage rates are still more than twice what they were at the start of 2022.

The lower rates and increasing gains have been causing home sales overall to drop for nine consecutive months.

In the past two months, mortgage rates have dropped slightly.

The drops may not matter to flippers as 64% use cash, which is the same as previous quarters.

“This is classic good news/bad news report for fix-and-flip investors,” said Sharga.

“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.”

Read also: Mortgage rates tipped to remain as is while interest rates go up

Extra factors

The cost weighs down investors looking to flip homes.

Labor and material prices remain high, and supply-chain delays are contributing to renovation costs.

The average time to flip a home in the third quarter had a slight drop, falling to 163 days after rising for three consecutive quarters.

While good news, it is still longer than the 149 days to flip a home in the third quarter of 2021.

Markets with the highest flip rates include:

  • Phoenix
  • Spartanburg, South Carolina
  • Atlanta
  • Gainesville, Georgia
  • Winston-Salem, North Carolina

Meanwhile, the following have markets that offer the best return:

  • Buffalo, New York
  • Pittsburgh, Pennsylvania
  • Scranton, Pennsylvania
  • Salisbury, Maryland

References:

Home flipping profits drop at the fastest pace in over a decade

Home flipping declines again across US during third quarter of 2022 as investor profits hit 13-year low

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