ATTOM: Home-Flipping Reaches 14-Year High in 1Q; Returns Fall to 9-Year Low

ATTOM Data Solutions, Irvine, Calif., said its first-quarter U.S. Home Flipping Report showed 53,705 single-family homes and condominiums in the United States flipped in the first quarter, the highest number since 2006.

The report said flips represented 7.5 percent of all home sales during the first quarter, up from 6.3 percent in the fourth quarter and from 7.3 percent a year ago.

ATTOM said gross profit on the typical home flip nationwide increased in the first quarter to $62,300, up slightly from $62,000 in the fourth quarter and from $60,675 a year ago.

However, the report said with home prices rising, the typical gross flipping profit of $62,300 fell to a 36.7 percent return on investment compared to the original acquisition price, down from a 39.5 percent gross flipping ROI in the fourth quarter and 40.9 percent a year earlier. The latest profit margin sits at the lowest level for home flipping since the third quarter of 2011.

ATTOM Chief Product Officer Todd Teta said the first-quarter pattern of investors unable to fully keep pace with soaring home prices revealed a soft spot in the nation’s nine-year market boom, just as the major impact of the worldwide coronavirus began damaging the United States economy. He said while it remains unclear how hard the housing market will get hit by the pandemic fallout, a drop in prices could further erode investor profits and cloud the future of the home-flipping industry.

“Home flipping has gradually taken up a larger portion of the housing market over the last couple of years,” Teta said.  “But profits are down and are lower than they’ve been since the dark days following the Great Recession, which is a sign that investors aren’t keeping up with price increases in the broader market. Enter now the coronavirus pandemic and the prospects for home flipping are notably uncertain, at least in the short term. We should know a lot more in a few months about whether home prices drop and investors get hit hard, or whether they can increase their profit margins.”

Other report findings:

–Home flips as a portion of all home sales increased from the fourth quarter to the first quarter in 122 of the 140 metropolitan statistical areas analyzed in the report (87.1 percent). The largest quarterly increases in home flipping rates came in Boston (up 80.2 percent); Springfield, Mass. (up 76 percent); Olympia, Wash. (up 73 percent); York, Pa. (up 71.4 percent); and Minneapolis (up 69.3 percent). The only decreases in annual flipping rates were in San Antonio (down 12.9 percent); Austin, Texas, (down 11.8 percent); Oklahoma City, Ola. (down 6.1 percent) and Houston (down 0.6 percent).

–Homes flipped in the first quarter sold for a median price of $232,000, with a gross flipping profit of $62,300 above the median purchase price of $169,700, up from $62,000 in the fourth quarter and from $60,675 last year. But with purchase prices on investment properties continuing to rise faster than resale values, the 36.7 percent return on median sales prices versus purchase prices in the first quarter of 2020 was down from 39.5 percent in the fourth and 40.9 percent last year. The latest ROI sits at the lowest point since the third quarter of 2011, when the typical home flip netted a 35.9 percent profit margin.

–Profit margins decreased annually in 75 of the 140 metro areas with enough data to analyze (53.6 percent).

–Highest first-quarter profits, measured in dollars, were concentrated in the West and Northeast. Among metro areas with enough data to analyze, 13 of the top 15 were in the those regions, led by San Francisco (gross profit of $171,000); San Jose ($165,000); Los Angeles ($145,000); New York ($141,899) and Honolulu ($140,190).

–Nationally, the percentage of flipped homes purchased with financing dipped in the first quarter to 40.5 percent, from 44 percent in the fourth quarter and 46.4 percent a year ago, to the lowest point since fourth quarter. Meanwhile, 59.5 percent of homes flipped in the first quarter were bought with all-cash, up from 56 percent in the prior quarter and 53.6 percent a year earlier.

–Home flippers who sold homes in the first quarter took an average of 174 days to complete a flip, up from 169 in the fourth quarter but down from 180 days last year.

–Of the 53,705 U.S. homes flipped in the first quarter, 15.3 percent were sold to buyers using a loan backed by FHA, up from 14.6 percent in the prior quarter and from 13.5 percent a year ago.

–Among 639 counties with at least 10 home flips in the first quarter, 113 counties had home flipping rates of at least 10 percent of all home sales. Among 1,560 U.S. zip codes with at least 10 or more home flips in the first quarter, 29 zip codes had flips accounting for at least 25 percent of all home sales last year.