U.S. Home Flipping Surges to Record Highs in 2022, But Profits Take a Nosedive
According to ATTOM’s latest U.S. Home Flipping Report for the year-end of 2022, the nation witnessed a substantial surge in the flipping of single-family homes and condos. A total of 407,417 properties were flipped, marking a 14 percent increase from 2021’s figure of 357,666 and a staggering 58 percent surge from 2020. This marks the highest level of home flipping activity seen since at least 2005.
Despite the surge in home flipping transactions, the report also highlights a concerning trend: a significant decline in gross profit margins on flipped properties. In 2022, gross profits hit their lowest level since 2008, following a second consecutive year of substantial decline. Flipped homes yielded a median gross profit of $67,900 nationwide, representing a 3 percent drop from the previous year. This translated to a mere 26.9 percent return on investment (ROI), a significant decrease from 2021’s 32.6 percent and 2020’s 41.9 percent.
One of the primary reasons behind the decline in profitability is the slower growth in the median value of flipped homes compared to the median purchase price. While the median value increased by 12 percent, the purchase price surged by 17 percent, eroding profit margins for investors.
This decline in home flipping profitability comes at a time when the broader housing market began to experience a slowdown, characterized by weaker annual gains and even declines in the latter half of 2022. Factors such as rising mortgage rates and consumer price inflation have contributed to reduced affordability and dampened demand, impacting the prices investors can command upon resale.
Rob Barber, CEO at ATTOM, expressed concerns over the diminishing returns in the home flipping sector, highlighting the challenges investors face in generating quick profits. He emphasized the importance of adapting strategies to navigate changing market conditions or potentially waiting for more favorable circumstances.
Despite the overall decline in profitability, home flipping rates surged across almost all housing markets, particularly in the South and West regions. Among the largest increases in flipping rates were metro areas such as Burlington, VT; Prescott, AZ; and Bremerton, WA. However, a few areas, notably New Orleans, LA, and Green Bay, WI, witnessed a decrease in flipping rates from 2021 to 2022.
Cash Purchases Dominate Home Flipping Trends in 2022
According to the latest data from ATTOM, the proportion of home flips financed with cash continued to rise in 2022, while financed purchases declined. Nationally, only 35.2 percent of flipped homes were purchased with financing, down from 35.9 percent in 2021 and a significant drop from 41 percent in 2020.
Conversely, a staggering 64.8 percent of homes flipped in 2022 were bought outright with all-cash transactions. This marks an increase from 64.1 percent in 2021 and a notable rise from 59 percent two years prior.
Among metropolitan areas with a population of 1 million or more, certain regions stood out for their financing and cash purchase trends in the home flipping market. In 2022, Boston, MA, led the pack with 53.7 percent of flipped homes purchased with financing, followed closely by San Diego, CA (51 percent), Seattle, WA (50.8 percent), Providence, RI (50.5 percent), and San Jose, CA (50.1 percent).
Conversely, in the same category, Detroit, MI, emerged as the metro area with the highest percentage of flips purchased outright with all cash, at an astounding 84.7 percent. Atlanta, GA, followed closely behind at 80.7 percent, trailed by Buffalo, NY (80.6 percent), Indianapolis, IN (77.4 percent), and Cleveland, OH (77.1 percent).
The data highlights a significant preference for cash purchases among investors in the home flipping market, indicating a continued trend towards liquidity and a desire to avoid financing constraints. This trend underscores the importance of access to capital and the role it plays in shaping investment strategies in the real estate sector.
Home Flipping Profits Experience Decline in Half of the U.S.
In 2022, the median price for homes flipped across the United States stood at $320,000. This resulted in a gross flipping profit of $67,900 above the median original purchase price, which was $252,100. While this national gross-profit figure was slightly lower than the $70,000 recorded in 2021, it remained higher than the $67,000 seen in 2020.
Among the 56 metropolitan areas in the U.S. with a population of 1 million or more, certain regions emerged with the largest gross flipping profits in 2022. Topping the list was San Jose, CA, with an impressive figure of $242,625, followed by San Francisco, CA ($163,000), Washington, DC ($146,728), New York, NY ($141,332), and Seattle, WA ($137,664).
Conversely, the lowest gross flipping profits among metro areas with a population of at least 1 million in 2022 were observed in Kansas City, MO ($26,963), San Antonio, TX ($29,000), Houston, TX ($29,901), Indianapolis, IN ($34,532), and Dallas, TX ($36,970).
The data reveals a mixed picture for home flipping profits across the nation, with some metropolitan areas experiencing robust gains while others face more modest returns. This underscores the importance of local market dynamics and investor strategies in determining profitability in the home flipping sector.
Home Flipping Returns Decline Across Most of the U.S., Reaching Lowest Levels in Over 15 Years
In 2022, the gross profit margin on typical home flips in the United States dropped to 26.9 percent, marking the smallest investment return observed since at least 2005. This decline is significant, with the return on investment (ROI) for median-priced home flips nationwide decreasing by 15 percentage points since 2020 and a substantial 24 points since 2016.
The decrease in margins occurred as the median resale price on flipped homes nationwide rose by just 12.3 percent, increasing from $285,000 in 2021 to $320,000 in 2022. This uptick was less than the 17.3 percent increase observed in the prices investors paid when acquiring homes, rising from $215,000 to $252,100.
In 168 out of 218 metro areas analyzed, representing 77 percent, the typical home-flipping investment return decreased from 2021 to 2022.
Among metro areas with a population of 1 million or more, the largest percentage-point decreases in profit margins during 2022 were recorded in Rochester, NY (ROI down from 100.4 percent in 2021 to 55.6 percent in 2022); Oklahoma City, OK (down from 63.6 percent to 35.1 percent); Philadelphia, PA (down from 106.3 percent to 78 percent); Richmond, VA (down from 91.4 percent to 68.6 percent), and Washington, D.C. (down from 61 percent to 42.7 percent).
Conversely, among the same group of markets with populations of at least 1 million, the largest increases in returns on investment on typical home flips were observed in Cleveland, OH (ROI up from 26.8 percent in 2021 to 41.4 percent in 2022); New Orleans, LA (up from 54.1 percent to 64.6 percent); Cincinnati, OH (up from 38.4 percent to 47.4 percent); Honolulu, HI (up from 5.7 percent to 7.4 percent), and Orlando, FL (up from 17.6 percent to 18.7 percent).
In terms of gross profit margins in 2022 among metro areas with a population of at least 1 million, the highest were seen in Pittsburgh, PA (114.2 percent); Buffalo, NY (90.7 percent); Philadelphia, PA (78 percent); Baltimore, MD (72.9 percent), and Richmond, VA (68.6 percent). Conversely, the smallest margins were observed in Honolulu, HI (7.4 percent); Austin, TX (8.2 percent); Sacramento, CA (9.4 percent); Phoenix, AZ (10.6 percent), and Houston, TX (11.3 percent).
Additionally, the average time taken to flip homes nationwide increased to 164 days in 2022, up from 152 days in 2021 but down from 182 days in 2020.
Furthermore, of the 407,417 U.S. homes flipped in 2022, only 8.4 percent were sold to buyers using a loan backed by the Federal Housing Administration (FHA), slightly up from 8 percent in 2021 but significantly lower than the 27.4 percent sold to FHA buyers in 2010.
Among metro areas with a population of at least 200,000 and at least 100 home flips in 2022, those with the highest percentage of flipped homes sold to FHA buyers were Merced, CA (25.6 percent); Visalia, CA (24.6 percent); Springfield, MA (22.2 percent); Laredo, TX (21.9 percent), and Modesto, CA (20.6 percent).
More than 200 Counties Witness Home Flipping Rates of Over 10 Percent in 2022
Out of the 955 counties with at least 50 home flips in 2022, a notable 219 counties saw flips constituting at least 10 percent of all home sales throughout the year. Leading this trend were five counties all situated in Georgia: Douglas County, GA (19.5 percent); Lumpkin County, GA (19.2 percent); Clayton County, GA (18.6 percent); Paulding County, GA (18.5 percent), and Rockdale County, GA (18 percent).
“While the declining margin may raise concerns, it’s crucial to recognize that these figures reflect property dispositions from acquisitions made in 2021 or early 2022 amidst the Covid-induced bidding wars seen in many regions,” stated Maksim Stavinsky, Co-Founder and President of Roc360.
On the flip side, it’s heartening to see investors successfully navigating through the sale of over four hundred thousand properties – the highest recorded number to date – despite rising interest rates, without a substantial increase in project timelines. Roc360 recently finalized its asset acquisition of Finance of America Commercial, a business purpose loan originator, indicating its ongoing commitment to growth within the industry.
High-Level Insights from Q4 2022 Home Flipping Data:
During the fourth quarter of 2022, there were a total of 80,335 home flips, representing a flipping rate of 8.4 percent.
Investors using financing accounted for 33.5 percent of all home flips in Q4 2022, a decrease from 36.3 percent in the previous quarter and 34.3 percent in Q4 2021. Conversely, the share of homes purchased with cash rose to 66.5 percent, up from 63.7 percent in Q3 2022 and 65.7 percent in Q4 2021.
The gross flipping profit on median-priced home flips in Q4 2022 amounted to $50,000, marking the lowest figure since Q1 2013. This translated to a typical 20 percent return on investment based on the original purchase price. This ROI was notably lower than the 24.9 percent recorded in the previous quarter and the 27.3 percent seen in the same period of 2021, reaching the lowest level since Q1 2009.
The decline in ROI witnessed in Q4 marked the eighth decrease in the last nine quarters.
The average time taken to complete home flips in Q4 2022 increased to 165 days, up from 153 days in Q4 2021.
