Investors hoping to make a quick profit from home flipping have found conditions challenging in the last year or so, but things are starting to improve along with the broader housing market.
New stats from real estate data specialists ATTOM reveals that investor profits and profit margins both increased in the second quarter year-over-year, as they did in the previous quarter, but remain well below the peaks hits in 2021.
Home-flipping activity decreased to 8% of all home sales between April and June, compared to almost 10% in the spring buying season where the broader market gained with a 10% spike in the national median home price.
For investors, who have seen profits from home flipping halve in the past two years, returns climbed in the second quarter at the fastest pace since 2020, with raw profits spiking more than at any point over the past decade.
Typical gross profit on homes flipped in Q2 was $66,500, which was around $10,000 higher than in the first quarter of the year, but down 35% quarter-over-quarter to one of the lowest points in the past five years.
The median $308,500 resale price of homes flipped nationwide in the second quarter generated a gross profit of $66,500 above the median investor purchase price of $242,000, a typical 27.5% profit margin, which was up 18% from the first quarter but well below the 44.6% level in the second quarter of 2022 and 60.8% in the same period of 2021.
The gains for home-flipping profits were aided by investors buying while median prices were subdued and then selling as the market rebounded. But there is no guarantees of where the housing market is headed.
"Fortunes for investors who flip homes for quick profits are showing more signs of turning around after a long and unusual period when they went down while the rest of the market went up," said Rob Barber, CEO at ATTOM. "However, the latest investment returns may not be substantial enough to cover the holding costs on typical deals. And it's still too early to declare the profit downturn over, as much will depend on whether the second-quarter market surge keeps going or whether it retreats again like it did last year."
While gross profits gained in two-thirds of U.S. housing markets quarter-over-quarter, the biggest increases in the typical profit margin were in Trenton, New Jersey (ROI up from 11.3% in the first quarter to 85% in the second quarter); Akron, Ohio (up from 50% to 116.7%); Montgomery, Alabama (up from 30.8% to 78.8%); Champaign, Illinois (up from 10.5% to 53.9%), and Hagerstown, Maryland (up from 45.6% to 86.6%).
ATTOM’s figures show that almost 63% of homes flipped in the second quarter were bought with cash, down from 66% in the previous quarter.
"The second-quarter dip in all-cash flips came during a brief period when mortgage rates were declining a bit after spiking during the prior year," Barber noted. "With rates now rising again, there will be more pressure on investors to use cash to finance their activity. The third quarter should reveal more about that trend."
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