Market Trends

Real Estate Market Trend: Sharp Decline in Home Flipping Amid Dipping Investment Returns

IRVINE, Calif., March 21, 2024 /PRNewswire/ -- ATTOM, a preeminent aggregator of comprehensive land, property, and real estate data, has announced the findings from its end-of-year 2023 U.S. Home Flipping Report. The report details a significant decrease in single-family homes and condos being flipped, with numbers plummeting to 308,922 in 2023, a dramatic 29.3% fall from 436,807 flips in 2022, marking the steepest annual downturn since 2008.

Additionally, the data reveals a concurrent downtrend in the overall proportion of home flips relative to all home sales, which slumped from 8.6% in 2022 to just 8.1% last year.

Profits Wane for Real Estate Investors

Notably, the industry has seen a slump in profits and profit margins for quick-turnaround home flipping endeavors, which involve buying, renovating, and promptly reselling properties.

According to the report, gross profits on typical flips in 2023 fell to a national median of $66,000, a decline from $70,100 in 2022. This resulted in a modest return on investment (ROI) of 27.5% relative to the initial purchase price. This figure is the lowest since 2007 and demonstrates a slip from ROIs of 28.1% in 2022 and 35.7% in 2021.

Investors observed their margins contracting for the six out of the past seven years as the median sale price of flipped homes marginally outpaced the median purchase price—4.4% versus 4%.

The Challenging Landscape of U.S. Home Flipping in 2023

Rob Barber, CEO of ATTOM, remarked on the increasingly arduous terrain for U.S. home flipping last year. The reduction in flip numbers likely reflects the difficulty choked by a scant supply of homes for sale along with diminishing returns. Barber anticipates a need for a considerable recalibration of business strategies to buoy the fortunes of home flipping.

The shortfall in home-flipping profits transpired in a year when the long-running surge in home prices commenced to stumble, spurring the weakest annual price escalations since 2012 and a marginal setback in gains for all types of sellers. Despite the cooling market, previous years of steady market growth were already accompanied by shrinking margins for home flippers.

Regional Shifts in Home Flipping Statistics

Downturns Across the U.S.

Home flipping rates across the board saw declines from 2022 to 2023 in 112 of the 212 metropolitan statistical areas assessed (tiny over half), with the South and West experiencing the most pronounced dips. Leading the pack with the biggest falls were Gainesville, GA; Phoenix, AZ; Prescott, AZ; Charlotte, NC; and Provo, UT.

Some high-population metros like Phoenix and Charlotte witnessed severe drops alongside Las Vegas, NV; Sacramento, CA; and Tucson, AZ. Yet, there were exceptions to the trend, with areas like Macon, GA; Gulfport, MS; Jackson, MS; Columbus, GA; and Dayton, OH actually experiencing growth in flipping rates.

Financing Flips vs. Cash Purchases

In 2023, a slightly higher share of flipped homes were acquired by investors using financing—36.5%, up marginally from 35.7% in 2022. Conversely, cash purchases, although still dominant at 63.5%, saw a slight decrease from the previous year.

Metropolitan areas with considerable populations, such as San Diego, CA; Seattle, WA; Fresno, CA; Providence, RI; and Boston, MA showed a greater share of flips financed by investors, while Detroit, MI; Cleveland, OH; Buffalo, NY; Pittsburgh, PA; and Birmingham, AL witnessed higher proportions of all-cash purchases.

Gross Profits and Flipping Margins

During 2023's real estate market, homes flipped nationwide were sold at a median of $306,000, which after considering the median purchase price of $240,000 left investors with a gross profit of $66,000. These numbers marked a decline from the profits of previous years, specifically the peak of $75,000 in 2021.

Findings highlight that San Jose, CA; San Francisco, CA; Boston, MA; New York, NY; and San Diego, CA yielded the most considerable gross profits on median-priced transactions in 2023. Conversely, locations like Austin, TX; San Antonio, TX; Dallas, TX; Houston, TX; and Phoenix, AZ trailed with the weakest gains.

The Decline of ROI in Metro-Area Markets

The typical home flipping ROI in the U.S. plummeted to 27.5%, the lowest since 2007, dragging down gross profits as home resale prices also descended. Areas with acute margin reductions in 2023 included Pittsburgh, PA; Buffalo, NY; Oklahoma City, OK; Richmond, VA; and Austin, TX, with some flipping activities swinging into losses.

On the positive side, metro areas such as Cincinnati, OH; Cleveland, OH; Honolulu, HI; Sacramento, CA; and Hartford, CT experienced substantial ROI surges on home flips.

The largest gross profit margins in 2023 were recorded in Pittsburgh, PA; Buffalo, NY; Baltimore, MD; Richmond, VA; and Philadelphia, PA. The least favorable ROIs were observed in locales including Austin, TX, and several cities in Texas and Utah.

The Home Flipping Timeline Lengthens

The average time taken to flip homes extended to around 169 days in 2023, marking an increase from the previous two years and hinting at lengthier renovation or market absorption times.

For a deeper insight into flipping timelines, access the U.S. Average Days to Flip chart.

FHA-Financed Flips Surge

In 2023, one in every nine homes flipped was sold to buyers utilizing FHA loans, a notable uptick from previous years. Markets where FHA-financed flips saw high incidence were Merced, CA; Modesto, CA; Visalia, CA; Bakersfield, CA; and Kennewick, WA.

Consistent High Flipping Rates in Certain Counties

Nearly 200 counties, particularly in Georgia, maintained a flipping rate of at least 10% last year, showing regional propensities for flipping as a real estate strategy.

A Quarterly Perspective

A staggering 65,656 home flips were conducted in the final quarter of 2023. This period also witnessed changes in financing preferences with a slight uptick in the use of financing over cash purchases. Despite this, the median gross profit shrunk to $65,000, highlighting a diminishing return on investment. These patterns fit within seasonal expectations, as the final quarter often sees reductions in ROI.

The Metrics Behind the Report

ATTOM's meticulous analysis involved reviewing sales deed data and defining a home flip as any arms-length residential property transaction occurring within 12 months of a previous one involving the same property. The primary measurement of profitability, the gross flipping profit, is calculated without the deduction of associated rehab costs and expenses, which can range from 20 to 33 percent of a property's post-repair value.

The Forefront of Real Estate Data: About ATTOM

ATTOM stands as a vanguard provider of premium property data, invigorating an array of sectors with data delivery solutions such as ATTOM Cloud, bulk file licenses, property data APIs, and more. ATTOM's rigorous data management and unique property identifying system, the ATTOM ID, underpin the integrity and utility of its vast data warehouse.

For additional information, visit ATTOM's website and explore their services like real estate market trends and AI-Ready Solutions designed for advanced applications.

Contact and Data Licensing

For inquiries or further details on the report, feel free to reach out to Megan Hunt at [email protected] or learn more about data and report licensing via [email protected]

In wrapping up, ATTOM's revealing insights serve to illustrate the challenges and shifts that have swept through the home flipping sector over the past year. As the real estate market continues to evolve, data-centric assessments such as these will be instrumental for the industry's stakeholders who strive to adapt and thrive amidst the changing economic backdrop.