92,422 single-family houses and condominiums were flipped in Q3 2022, which is 7.5% of all home sales (or one in 13 transactions), according to a new report from ATTOM.
ATTOM’s Home Flipping Report for Q3 2022 found that the latest portion was down from 8.2%, or one in every 12 home sales in the nation during last quarter. But it was still up from 5.9%, or one in 17 sales, last year. Despite the decline, the home-flipping rate during Q3 2022 still stood at the third-highest level in the past decade, below the high point of 9.7% registered in Q1 2022.
Among all flips nationwide, ATTOM found that the gross profit on typical transactions (the difference between the median purchase price paid by investors and the median resale price) decreased to $62,000. That was down 18.4% from $76,000 last quarter and down 11.4% from $70,000 last year. The latest profit figure stood at the lowest point since Q4 2019, while the quarterly rate of decline marked the worst since early 2009.
Typical profit margins, as the report stated, sank after rising in the prior two quarters. The typical gross-flipping profit of $62,000 translated into a 25% return on investment compared to the original acquisition price. That was down from 30.2% last quarter and from 31.8% last year. The typical third-quarter return on investment slumped to the lowest point since 2009 and was less than half the peak over the past decade of 53.1% in late 2016.
ATTOM stated that so large was the fall in Q3 that typical returns were less than 25% in nearly half the metropolitan areas around the nation with enough data to analyze, compared to just a third of them earlier in 2022. Specifically the typical resale price on flipped homes declined to $310,000. That was down 5.5% from $328,000 last quarter, although still up 6.9% from $290,000 last year.
The report found that the quarterly drop-off in median resale values was worse than the 1.6% decline in prices that recent home flippers were commonly seeing when they originally bought their properties. The price-change gap between buying and selling resulted in profit margins going down from Q2 to Q3 2022.
Key highlights:
- Home flips as a portion of all home sales decreased from the second to the third quarter of 2022 in 132 of the 194 metro areas around the U.S. analyzed for this report (68%). Where rates declined, they mostly decreased by less than two percentage points.
- Among those metros, the largest flipping rates were in Phoenix, Arizona (13.7%); Spartanburg, South Carolina (13.3%); Atlanta, Georgia (12.9%); Winston-Salem, North Carolina (12.7%) and Gainesville, Georgia (12.6%). Aside from Phoenix and Atlanta, the largest flipping rates among metro areas with a population of more than 1 million were in Memphis, Tennessee (12.1%); Jacksonville, Florida (11.8%) and Tucson, Arizona (11.4%).
- The smallest home-flipping rates were in Honolulu, Hawaii (1.6%); Davenport, Iowa (3.7%); Rochester, New York (4%); Ann Arbor, Michigan (4%) and Bridgeport, Connecticut (4%).
- The median $310,000 resale price of homes flipped nationwide generated a gross flipping profit of $62,000 above the median investor purchase price of $248,000. That resulted in a typical 25% profit margin.
- Typical home flips generated less than a 25% profit in 91 of the 194 metros with enough data to analyze (47%). Profit levels were that low in just 32% of the metros reviewed in the second quarter of this year. Moreover, profit margins decreased from Q2 to Q3 2022 in 158 of the areas analyzed (81%) and were down compared to last year in 78% of those markets.
- The biggest quarterly decreases came 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 (down from 96% to 53.8%) and Evansville, Indiana (from 53.9% to 15.3%).
- Markets with the largest returns on investment for typical home flips completed were Buffalo, New York (121.7%); Pittsburgh, Pennsylvania (116.9%); Scranton, Pennsylvania (88.7%); Reading, Pennsylvania (86.7%) and Salisbury (81.2%). Aside from Buffalo and Pittsburgh, the largest investment returns among metro areas with a population of at least 1 million were in Philadelphia, Pennsylvania (77.5%); Baltimore, Maryland (75%) and Detroit, Michigan (68.3%).
- Metro areas with the weakest returns on typical home flips were Jackson, Mississippi (0.4% loss); Honolulu, Hawaii (0.3% loss); Boise, Idaho (0.1% profit); Ogden, Utah (2 percent profit) and Santa Barbara, California (3.2% profit).
- The highest gross profits on median-priced home flips, measured in dollars, were concentrated in the South and Northeast regions of the country. Seventeen of the top 20 were in those areas, led by Salisbury ($198,983); San Jose, California ($160,000); New York, New York ($145,000); Washington, D.C. ($140,000) and Baltimore, Maryland ($135,000).
- The South also dominated the opposite end of the range, along with the West, as 14 of the 15 lowest gross profits, or losses, on typical home flips were spread across those regions. Their weakest numbers were in Honolulu, Hawaii ($2,232 loss); Jackson, Mississipii ($913 loss); Boise ($598 profit); Longview, Texas ($7,757 profit) and Ogden ($8,010 profit).
Major takeaway:
“This is a classic good news/bad news report for fix-and-flip investors,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “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.”
Sharga added, “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.”
For the full report, with more information on investing, flip times and rates, click here.
