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House-Flipping Rate Rises, but Investors’ Profits Are Falling

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Roughly one in 10 U.S. homes sold during the first quarter of 2022 was flipped, as investors responded to strong demand from buyers. But the profits on those deals fell to a 13-year low, a new report shows.

The report, published by the real estate data analytics firm Attom, showed that 114,706 single-family houses and condos were flipped during the first quarter of the year, representing 9.6 percent of all transactions in that period. That’s up from 6.9 percent in the fourth quarter of 2021 and 4.9 percent in the first quarter of 2021.

To determine the number of homes flipped, Attom examined sales data on all arm’s length transactions — those in which the buyer and seller are unaffiliated — on properties sold in the previous 12 months and again in the first quarter of 2022.

Despite the increase in the flip rate, the return on investment for these deals fell to 25.8 percent, its lowest level since the first quarter of 2009 and down from 38.9 percent a year ago.

The shrinking profit margin for “fix-and-flip” investors can be traced to a lack of inventory, said Rick Sharga, the executive vice president of market intelligence at Attom, caused in part by rising mortgage rates. “People are staying in their current house because they don’t want to trade a 3 percent mortgage for a 6 percent mortgage,” he said.

The swelling costs of goods and materials amid supply-chain disruptions are also cutting into the profits. “The other practical reason,” Mr. Sharga said, “is that foreclosure activity has been way down because of government intervention.”

House flippers do not compete with would-be home buyers, he said, but instead play a crucial role in the housing ecosystem by buying and fixing up distressed homes. “Most flippers are professionals who do this for a living and can do the repairs more cost-effectively and better than the buyer,” he said.

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Filed Under: REAL ESTATE

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