According to ATTOM’s first-quarter home flipping report, 114,706 single-family houses and condos were flipped, representing 9.6 percent of all home sales in quarter. That’s the highest level since 2000, up from 6.9 percent quarter-over-quarter and from 4.9 percent year-over-year.
The jump in the home-flipping rate marked the fifth straight quarterly increase as well as the largest quarterly and annual percentage-point gains since 2000.
However, as home sales by investors spiked, the report shows profit margins on those deals dipped to their lowest point since 2009.
“The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers, as evidenced by this quarter’s report, which shows that one of every 10 homes sold during Q1 was a flip,” ATTOM Executive Vice President of Market Intelligence Rick Sharga said in a release. “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. This is having a predictable impact on profit margins for investors.”
The gross profit on typical transactions stood at $67,000 in the first quarter, according to the report. That was up 5.5 percent from $63,500 in the fourth quarter, it was down 4.3 percent from the $70,000 level recorded in the first quarter of 2021.
Profit margins fell for the sixth quarter in a row, as the typical gross-flipping profit of $67,000 translated into just a 25.8 percent return on investment (ROI). The national gross-flipping ROI in the first quarter was down from 27.3 percent in the fourth quarter of 2021 and from 38.9 percent a year earlier. It sat at the lowest point since the first quarter of 2009, when the housing market was slumping from the effects of the Great Recession.
Home flips as a portion of all home sales increased quarter-over-quarter in 95 percent of the metros analyzed by ATTOM. The largest flipping rates during the first quarter were in Phoenix (18.7 percent of all home sales); Charlotte, N.C. (18 percent); Tucson, Ariz. (16.2 percent); Atlanta (16.1 percent) and Jacksonville, Fla. (16 percent). The smallest home-flipping rates were in Olympia, Wash. (4.4 percent); Portland, Maine (4.6 percent); Salem, Ore. (4.7 percent); Syracuse, N.Y. (4.7 percent) and Davenport, Iowa (4.9 percent).
Profit margins dipped year-over-year in 73 percent of the metro areas analyzed. The biggest annual declines came in Salisbury, Md. (ROI down from 173.7 percent to 29.3 percent); Elkhart, Ind. (down from 148.3 percent to 24.9 percent); Macon, Ga. (down from 120.7 percent to 50.9 percent); Lynchburg, Va. (down from 96.2 percent to 31.5 percent) and Flint, Mich. (down from 126.2 percent to 64 percent).
Markets with the largest ROIs during the first quarter on typical home flips were Scranton, Pa. (115.5 percent); Kingsport, Tenn. (114 percent); Reading, Pa. (108.6 percent); Pittsburgh (105.7 percent) and Johnson City, Tenn. (101.1 percent). Metro areas with the smallest profit margins were Boise, Idaho (4.4 percent return); Fort Collins, Colo. (5.7 percent); College Station, Texas (7.2 percent); Sacramento, Calif. (9 percent) and Santa Rosa, Calif. (9.6 percent).
Nationwide, 62.7 percent of homes flipped in the first quarter were purchased with cash. That figure was virtually unchanged from 62.9 percent in the fourth quarter, but up from 60.9 percent a year ago. That means 37.3 percent of homes flipped in the first quarter were bought with financing, about the same as the 37.1 percent in the prior quarter, but down from 39.1 percent a year earlier.
“As interest rates continue to go up, cash buyers should be in an even greater position of competitive advantage in the fix-and-flip market,” Sharga said. “It will be interesting to see if the percentage of cash purchases, and purchases made by larger, better capitalized investors, increases over the next few quarters.”
Those metros with a population of 1 million or more that had the highest percentage of first-quarter flips purchased with cash include Buffalo, N.Y. (86.4 percent); Detroit (84 percent); Tucson, Ariz. (78.1 percent); Cincinnati (76.5 percent) and Raleigh, N.C. (76.5 percent).