IRVINE, CA — In a sign that might send shudders down the spine of many in the real estate industry, ATTOM, a company reputable for its careful curation of land, property and real estate data, recently released its end-of-year Home Flipping Report for 2023. The report paints a rather grim picture of the United States’ home flipping landscape, showing a sharp dip in both the number of single-family homes and condos flipped, and the associated profits.
In 2023, only 308,922 single-family homes and condos were flipped throughout the United States, marking a substantial 29.3 percent decline from the 436,807 flipped in 2022. This considerable downturn represents the most significant annual drop since 2008, and as such, the implications for the entire real estate industry are profound.
As the number of homes bought, renovated, and resold by investors slid, so did flipping as a proportion of all home sales, which dropped from 8.6 percent to 8.1 percent, year-on-year. This downturn is another alarming sign for the real estate industry, particularly those who rely heavily on the home flipping market.
That’s not all. The profit margins from these quick buy-renovate-and-sell projects also took a hit, falling six times in the last seven years. The gross profit on conventional home flips in 2023 plunged to a nationwide low of $66,000, down from $70,100 the previous year. This figure represents a paltry 27.5 percent return on investment, compared to the original acquisition price and is the worst level since 2007.
Revealingly, the median price of the homes investors flipped declined slightly faster than the median price they initially paid to procure these properties. The home flipping landscape in the U.S. in 2023 became progressively treacherous, according to Rob Barber, CEO at ATTOM. He notes, the sharp decrease in home flips reflects a combination of tight supply of homes for sale and dwindling returns, thereby calling for a major overhaul of the financials for home flipping fortunes to turnaround.
Moreover, the year witnessed the nation’s decade-long home-price run-up begin to stall, leading to the weakest annual price gains since 2012 and a slight drop in profits for sellers of all kinds. Despite the broader housing market’s boom in prior years, the profit gap between investors and all sellers gradually broadened, with home flippers seeing declining margins.
Turning a profit on home flips is becoming increasingly difficult as typical returns could be easily obliterated by renovation and repair process costs, which often account for 20 to 33 percent of the resale price. Home flips even decreased in 53 percent of the metropolitan statistical areas analyzed in the report, a downturn led by the South and West regions.
Home flips purchased with financing witnessed a slight uptick with 36.5 percent of flipped homes initially procured by investors with financing in 2023, up from 35.7 percent in 2022 and 36.2 percent in 2021. Meanwhile, cash-only purchases for home flips shrunk slightly to 63.5 percent from 64.3 percent the previous year.
Altogether, this cocktail of shrinking profits, dwindling return on investments, and fewer homes being flipped paints a bleak picture for the U.S. home-flipping industry. It reinforces the fact that the future of home flipping is hanging by a thread and that substantial financial restructuring will be needed for this sector to bounce back.
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