Home-flipping hits 22-year high, but profits narrow

1 in 10 sales was a flip last quarter; Silicon Valley’s differentials were highest

A photo illustration of home-flipping (iStock)
(iStock/Photo Illustration by Steven Dilakian for The Real Deal)

Home flippers are making more deals than ever. But they are making less money on each one.

Nearly 115,000 home flips took place during the first three months of the year, accounting for 9.6 percent of home sales — the highest rate since at least the start of the century, a report by Attom found.

In the previous quarter, flips only represented 6.9 percent of home sales. Flips’ market share has now increased for five straight quarters, and the most recent increase was the largest since at least 2000.

At the same time, flippers’ profit margins slipped.

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“The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation rates, and buyers have become more selective — and less willing to outbid other buyers for properties they’re interested in,” said Attom’s Rick Sharga. “This is having a predictable impact on profit margins for investors.”

The profit on a typical flip fell to $67,000 in the first quarter, down 4.3 percent from $70,000 a year earlier. It was up 5.5 percent from the fourth quarter, though. The numbers do not reflect renovation and staging costs.

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Profit margins — expressed as a percentage — declined for the sixth consecutive quarter. Typical flippers sold for 25.8 more in the first quarter than they had paid, down from 27.3 percent in the fourth quarter and 38.9 percent a year before.

The first-quarter differential was the lowest recorded since 2009, in the aftermath of the housing crash.

A reason for the slip in profit margins is the slowing growth of home prices, which are not rising as quickly as when flippers bought their properties. Still, the median price of homes flipped in the first quarter was $327,000, an all-time high.

The largest flipping rate of the first quarter among the 191 metro areas analyzed was in Phoenix: 18.7 percent of all home sales. Olympia, Washington, was on the other end of the spectrum with flips representing only 4.4 percent of sales.

The market with the best profit margin was Scranton, Pennsylvania, at 115.5 percent. The lowest was in Boise, Idaho — just 4.4 percent.

San Jose had the highest raw differential between acquisition and sale price: $420,000. San Francisco ranked second at $220,000.

Home flippers took an average of 162 days to complete sales of their properties in the first quarter, below historic averages, but up from 154 days in the fourth quarter and 157 days in 2021’s first quarter.