Home-Flipping Becoming Less Lucrative

According to ATTOM Data, flippers completed and sold 92,422 single-family homes and condominiums in the third-quarter of 2022 representing 7.5% of all home sales—or 1-in-13 homes. This number is down from 8.2%—or 1-in-12 sales—recorded in the second quarter but on a yearly basis is up from 5.9% or 1-in-17 sales. 

According to ATTOM, despite the decline in flipping rates during the third quarter, numbers are still at their third-highest level in the past decade—the highest number reported was 9.7% of all homes which occurred in the first quarter of 2022. 

"This is a classic good news/bad news report for fix-and-flip investors," said Rick Sharga, EVP 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." 

And flipping rates are dropping for good reason: inflation, supply-chain issues, and interest rates are all eating into their gross profits, which according to the report are at their lowest point in three years. 

The median gross profit per flip decreased to $62,000 (a roughly 25% return) in the third quarter. This was down 18.4% from $76,000 (or 31.8% return) in the second quarter and 11.4% from $70,000 (31.8%) a year earlier. The latest profit figure stood at the lowest point since the fourth quarter of 2019, while the quarterly rate of decline marked the worst on record seen since 2009. 

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. 

Specifically, in the third quarter of 2022, the typical resale price on flipped homes declined to $310,000. That was down 5.5% from $328,000 in the second quarter of 2022, although still up 6.9% from $290,000 a year earlier. 

"It's apparent that fix-and-flip investors aren't immune to the shifting conditions in the housing market," Sharga noted. "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." 

The average time it took from purchase to resale dropped to 163 days in the third quarter, down from 166 days during the second quarter and up from 149 days a year ago. 

Click here to see the report in its entirety, including breakdown for top-performing metropolitan areas.