ATTOM’s 2021 U.S. Home Flipping Report shows that 323,465 single-family homes and condos were flipped last year, a 26 percent year-over-year increase to the highest point since 2006. Flips in 2021 represented 5.5 percent of all home sales, down from 5.8 percent in 2020 and 6.1 percent in 2019.
However, gross profit margins on home flips in 2021 sank to their lowest level in more than a decade after dropping at the fastest pace in more than 15 years, according to ATTOM. Homes flipped in 2021 typically generated a gross profit of $65,000, down 3 percent year-over year, and translated into just a 31 percent return on investment (ROI) compared with the original acquisition price, the lowest margin since 2008.
“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” ATTOM Executive Vice President of Market Intelligence Rick Sharga said in a release. “Fewer flippers financed their purchases, so their cost of capital was lower. And it took less time to execute a flip, reducing holding costs, and suggesting that less extensive – and less expensive – repairs were needed to bring the properties to market. A lot of the markup on fix-and-flip properties historically has come from the value of those repairs, but so have a lot of the costs that reduce net profits.”
Home flips as a portion of all home sales decreased from 2020 to 2021 in 53 percent of the metro areas analyzed. The biggest decreases in annual flipping rates were in Honolulu (down 83 percent), Atlantic City, N.J. (down 73 percent), Manchester, N.H. (down 57.7 percent), Rochester, N.Y. (down 48 percent) and Cedar Rapids, Iowa.
Home flipping rates increased in 47 percent of metro areas analyzed. The largest annual increases in the home flipping rate came in Utah and Texas, including Provo, Utah (up 114.3 percent), Salt Lake City (up 113.4 percent), Austin, Texas (up 111.2 percent), College Station, Texas (up 97.4 percent) and Ogden, Utah (up 95 percent).
The percentage of flipped homes purchased with financing in 2021 dropped to 38.7 percent from 41 percent in 2020 and from 39.9 percent in 2019. Also, 61.3 percent of homes flipped in 2021 were bought with all-cash, up from 59 percent in 2020 and 60.1 percent in 2018.
“In an environment where mortgage rates are rising as rapidly as they are today, investors buying with cash are at a distinct advantage over consumer homebuyers,” Sharga said. “The combination of rising home prices, rising mortgage rates and rising inflation is undoubtedly creating affordability issues for many prospective buyers, so it’s possible that there will be less competition overall for the limited inventory of homes available for sale.”
The metro areas with 1 million or more people with the highest percentage of flipped homes purchased by investors with financing in 2021 included Louisville, Ky. (55.6 percent), San Diego (55.4 percent), Seattle (52.6 percent), Portland, Ore. (48.6 percent) and San Francisco (47.6 percent).
The metro areas with 200,000 or more that had the highest percentage of flips purchased with all cash included Tuscaloosa, Ala. (90.6 percent), Buffalo, N.Y. (84.1 percent), Dayton, Ohio (82.8 percent), Detroit (82.2 percent) and Canton, Ohio (82.1 percent).
Homes flipped in 2021 were sold for a median price of $275,000, with a gross flipping profit of $65,000. That’s down from a 15-year gross-profit high of $67,000 in 2020 but up from $60,000 in 2019.
Those metro areas of 1 million or more with the largest gross-flipping profits in 2021 were San Jose, Calif. ($265,500), San Francisco ($172,000), Seattle ($149,950), San Diego ($145,500) and Washington, D.C. ($139,555). Those with the lowest gross-flipping profits include Kansas City, Mo. ($23,456), Houston ($32,300), San Antonio, Texas ($34,357), Dallas ($40,800) and Atlanta ($43,900).
Among metro areas with a population of 1 million or more, the biggest year-over-year percentage-point decreases in profit margins in 2021 were in Cleveland (ROI down from 101.5 percent in 2020 to 40 percent in 2021), Cincinnati (down from 83.5 percent to 40 percent), St. Louis, Mo. (down from 71 percent to 39 percent), Columbus, Ohio (down from 70 percent to 40 percent) and Providence, R.I. (down 65.7 percent to 36.4 percent).
The only increases in ROI in that group of metro areas were in Buffalo, N.Y. (ROI up from 92 percent in 2020 to 98.9 percent in 2021), Raleigh, N.C. (up from 14.5 percent to 19.8 percent), Nashville, Tenn. (up from 33.3 percent to 36.8 percent), Boston (up from 29.1 percent to 31.3 percent) and Phoenix (up from 20.8 percent to 21.3 percent).