The real estate market is showing an interesting trend according to the recent third-quarter 2023 U.S. Home Flipping Report by ATTOM, a leading provider of property data. While the rate of home flipping has declined, profits for home flippers have seen a rise.
The report reveals that 72,543 single-family homes and condominiums were flipped in the third quarter, accounting for 7.2 percent of all home sales nationwide from July through September 2023. This figure is down from the 7.9 percent recorded in the second quarter of 2023, marking a decrease for the second consecutive quarter and reaching the lowest point in two years.
Despite the decreased flipping rate, the report shows an encouraging trend for investors in the form of rising profits. The typical profit margin in the third quarter was 29.8 percent nationwide, up from 29 percent in the previous quarter, and a considerable increase of seven percentage points from a low of 22.4 percent in the fourth quarter of last year.
Rob Barber, CEO for ATTOM, commented on the findings, saying, “The comeback for the home-flipping industry is looking more like a real trend than a temporary break.” He noted that although investment returns are not yet back to their peak levels, the industry is undoubtedly moving in the right direction.
Raw profits on typical flips also increased, rising to $70,000, up slightly from the second quarter of 2023 and a significant $15,000 more than the previous year’s low point. However, this remains well below the 2021 high of $110,000.
The report suggests that the increase in profits and profit margins is due to investors benefiting from shifts in prices from the time of property purchase to resale. The typical resale price of flipped homes decreased to $305,000 in the third quarter, a decline of 1.5 percent from the previous quarter. However, this decrease was less than the 2.1 percent dip in median prices that home flippers experienced when purchasing their properties, resulting in improved profits and profit margins.
While the home flipping rate may be declining, it appears that those who are investing in flipping houses are seeing increased returns, indicating a promising trend for investors in this sector.
US Home Flipping Rates Dip in Q3 2023, South Leads with Highest Rate
In the third quarter of 2023, home flipping rates in the United States saw a decline, according to data from property database ATTOM. Home flips accounted for a smaller portion of all home sales compared to the previous quarter in 136 of the 183 metropolitan statistical areas (MSAs) analyzed, representing approximately 74% of the regions studied.
The MSAs included in the analysis had a population of at least 200,000 and a minimum of 50 home flips recorded in the third quarter. Most of the declines in these areas were by less than two percentage points.
Among these metros, Macon, GA, topped the chart with the highest flipping rate, where flips made up 16.1% of all home sales. Salisbury, MD followed with 14.1%, and Spartanburg, SC held the third spot with 13.3%. Atlanta, GA and Fayetteville, NC also stood out with high flipping rates of 13.2% and 12.8%, respectively.
Excluding Atlanta, large metro areas with populations exceeding one million that reported significant flipping rates included Memphis, TN (12.5%), Jacksonville, FL (10.8%), Phoenix, AZ (10.4%), and Cincinnati, OH (10.2%).
On the other end of the spectrum, the lowest home-flipping rates among the analyzed metros in the third quarter were found in Seattle, WA (3.8%), Madison, WI and Honolulu, HI both at (3.9%), Bridgeport, CT (4%), and Lansing, MI (4.1%).
Regionally, the South led the nation with the highest third-quarter flipping rate at 9.1%. The West followed with an 8.1% flipping rate, while the Midwest and Northeast trailed with rates of 6.5% and 5.2%, respectively.
Despite the overall downward trend in home flipping rates, the activity remains a significant part of the real estate market in many areas. With the South leading the pack, it will be interesting to watch how these trends evolve in the coming quarters.
Profit Margins Rise in Q3 2023 for Home Flippers Across Half of the U.S.
In a positive turn of events for real estate investors, typical home flipping returns have risen across half of the United States in Q3 2023. According to recent data, the median resale price of flipped homes nationwide was $305,000, generating a gross profit of $70,000 above the median investor purchase price of $235,000.
This led to a typical profit margin of 29.8% in Q3 2023, marking an increase from 29% in Q2 2023 and 27% in Q3 2022. However, it’s worth noting that these figures are still significantly lower than the 60.8% level seen in Q2 2021.
Profit margins increased from Q2 to Q3 2023 in 93 of 183 metro areas analyzed, accounting for 51% of the regions studied. On an annual basis, profit margins rose in 111 markets, representing 61% of the areas analyzed.
Akron, OH witnessed the largest year-over-year increase in typical profit margins during Q3 2023, with the return on investment (ROI) soaring from 50% in Q3 2022 to 114.1% in Q3 2023. Flint, MI followed closely, with ROI increasing from 61.6% to 113.8%. Other notable increases were observed in Canton, OH; Augusta, GA; and York, PA.
Among large metro areas with populations of at least one million, Birmingham, AL; Buffalo, NY; Cleveland, OH; Cincinnati, OH; and Tulsa, OK saw the most significant annual increases in typical profit margins.
Despite these gains, typical profit margins remained below 30% in about a third of the 183 metros analyzed in Q3 2023. However, this was a marked improvement from the previous year when half of these metro areas commonly reported investment returns that low.
On the other hand, metro areas with populations of at least one million that reported the weakest returns on typical home flips in Q3 2023 included Austin, TX; Dallas, TX; San Antonio, TX; Houston, TX; and Salt Lake City, UT.
These trends indicate a potentially promising outlook for real estate investors, particularly in regions experiencing significant increases in profit margins. However, it also underscores the importance of location in determining the profitability of home-flipping ventures.
Q3 2023 Sees Highest Home Flipping Profits in West and Northeast, South Lags Behind
In the third quarter of 2023, the highest raw profits from home flipping were reported in the West and Northeast regions of the United States. According to recent data, 20 of the 25 highest profit figures were concentrated in these regions, indicating a booming market for real estate investors.
San Jose, California, led the pack with an impressive typical gross profit of $355,000 on median-priced home flips. It was closely followed by San Francisco, California, where investors enjoyed a gross profit of $249,000. Salisbury, Maryland, also presented profitable opportunities with a typical gross profit of $231,015. Rounding out the top five were San Diego, California, and both Bridgeport, Connecticut, and New York, New York, each reporting a substantial $165,000 typical gross profit.
However, it wasn’t all good news across the country. The South and West regions found themselves on the opposite end of the spectrum, accounting for 24 of the 25 lowest raw profits from median-priced transactions in the same period.
Albuquerque, New Mexico, reported the weakest numbers with a loss of $1,875 on typical home flips. Tyler, Texas, saw a meager profit of $1,749, while Provo, Utah, recorded a $2,120 profit. Austin, Texas, and Beaumont, Texas, didn’t fare much better, with profits standing at $4,939 and $6,062 respectively.
These trends underscore the regional disparities in real estate investment returns. While the West and Northeast are currently hotspots for home flipping profits, investors in the South and certain parts of the West are facing more challenging conditions. As always, location remains a crucial factor in determining the success of real estate investments.
Cash Transactions Edge Up Among Home Flippers in Q3 2023, Detroit Leads with Highest Rate
In the third quarter of 2023, all-cash purchases by home flippers saw a slight increase across the United States. According to recent data, 62.9% of homes flipped during this period were bought by investors with cash, marking a rise from 62.3% in the previous quarter. However, this figure is still lower than the 63.7% recorded in the same quarter of 2022.
Conversely, the proportion of homes flipped that were financed fell slightly to 37.1% in Q3 2023, down from 37.7% in Q2 2023. Yet, this figure represents an increase from 36.3% reported a year earlier.
Barber, an industry analyst, attributed the uptick in all-cash flipping to rising average home mortgage rates. “All-cash flipping inched up a bit as average home mortgage rates rose by a full percentage point across the country during the third quarter following some small drop-offs earlier in 2023,” he explained. Barber also noted that with rates now dipping back down, the pressure to finance flips with cash is easing, which could lead more investors back to financing their purchases.
Among metropolitan areas with a population of 1 million or more, Detroit, MI, led the nation with the highest percentage of homes flipped purchased with cash in Q3 2023 at 79.7%. Cleveland, OH, followed with 76.5%, and Rochester, NY, came in third with 73.4%. Cincinnati, OH, and Buffalo, NY, also reported high rates of cash transactions for home flips at 72.6% and 70.4%, respectively.
These trends suggest that while financing remains a popular option, many real estate investors are still opting for all-cash transactions, particularly in cities like Detroit and Cleveland. As mortgage rates fluctuate, it will be interesting to see how these patterns evolve in future quarters.
Home Flipping Turnaround Time Shrinks in Q3 2023, Hits Two-Year Low
The third quarter of 2023 saw a significant decrease in the average time it takes to flip a home in the United States. According to recent data, the average turnaround time for home flips dropped to 161 days, a reduction of 17 days from the 178-day average recorded in Q2 2023.
This figure also represents a four-day decrease from the same period in 2022, when the average time to flip a home was 165 days. Moreover, this is the shortest turnaround time observed since Q4 2021, pointing to increased efficiency and speed in the home flipping market.
This trend could be attributed to a variety of factors, including favorable market conditions, increased investor experience, or efficiencies in renovation processes. Regardless, the reduced turnaround time is good news for real estate investors, as it could potentially lead to quicker returns on their investments.
Q3 2023 Sees First Drop in Home Flips Sold to FHA Buyers in Over a Year
For the first time in over a year, the third quarter of 2023 witnessed a drop in the percentage of U.S. homes flipped and sold to buyers using loans backed by the Federal Housing Administration (FHA). Out of 72,543 homes flipped during this period, 10.1 percent were sold to FHA-backed loan users, marking a decrease from 11.8 percent recorded in the preceding quarter. However, this figure is still an improvement from the 8.9 percent reported in Q3 2022.
Typically, FHA buyers are often first-time home purchasers, thus these figures could indicate changes in the dynamics of the first-time homebuyer market.
Among metropolitan areas with a population of at least 200,000 and a minimum of 50 home flips in Q3 2023, those with the highest percentage of properties flipped and sold to FHA buyers included Bakersfield, CA (27.7 percent), Visalia, CA (27.4 percent), Greeley, CO (27.3 percent), Vallejo, CA (26.7 percent), and Lakeland, FL (24.9 percent).
These trends suggest that while the overall proportion of homes flipped and sold to FHA buyers is decreasing, there are still regions where this type of transaction remains prevalent. Investors should take note of these regional variations when planning their strategies.
Q3 2023 Sees One in Six U.S. Counties With Home-Flipping Rates of At Least 10%
The third quarter of 2023 reported that home flips accounted for at least 10% of all home sales in one out of every six counties across the United States. This statistic pertains to 175, or 17.9% of the 979 U.S. counties with a minimum of 10 home flips during the said period.
This figure represents a dip from the second quarter of 2023, when nearly 24% of all counties with sufficient data recorded similar home-flipping rates.
Leading the pack in Q3 2023 were Somerset County (Princess Anne), MD with a flipping rate of 22%; Lumpkin County, GA, north of Atlanta, and Lamar County, GA, south of Atlanta, both with 20.4% and 20% respectively; Cobb County (Marietta), GA with 20%; and Hopewell City/County, VA with 19.4%.
These trends underline the ongoing popularity of home flipping as a viable real estate investment strategy, albeit with regional variations in prevalence.
Note, ATTOM analyzed sales deed data for this report. A single-family home or condo flip was any transaction where a previous sale had occurred on the same property within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price. Gross flipping return on investment was calculated by dividing the gross flipping profit by the original purchase price.
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