Home Flipping Rate and Gross Profits Decline Across U.S. in First Quarter of 2021
Home Flipping Rate Falls in First Quarter to Lowest Level Since 2000
Prices on Flipped Homes Drop, Leading to Smallest Profit Margin in 10 Years
ATTOM, curator of the nation’s premier property database, released its first-quarter 2021 U.S. Home Flipping Report showing that 32,526 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented only 2.7 percent of all home sales in the first quarter of 2021, or one in 37 transactions—the lowest level since 2000.
The latest figure was down from 4.8 percent, or one in every 21 home sales in the nation during the fourth quarter of 2020 and from 7.5 percent, or one in 13 sales, in the first quarter of last year. The quarterly and yearly drops in the flipping rate marked the largest decreases since at least 2000.
As the flipping rate dropped, both profits and profit margins also declined. The gross profit on the typical home flip nationwide (the difference between the median sales price and the median price paid by investors) declined in the first quarter of 2021 to $63,500. That amount was down from $71,000 in the fourth quarter of 2020, although still up slightly from $62,000 in the first quarter of last year.
The slide pushed profit margin returns down, with the typical gross flipping profit of $63,500 in the first quarter of 2021 translating into a 37.8 percent return on investment compared to the original acquisition price. The gross flipping ROI was down from 41.8 percent in the fourth quarter of 2020, and from 38.8 percent a year earlier, to its lowest point since the second quarter of 2011 when the housing market was still mired in the aftereffects of the Great Recession in the late 2000s.
Profits and profit margins went down in the first quarter as median prices on flipped homes decreased quarterly for the first time in two years. Homes flipped in the first quarter of 2021 were sold for a median price of $231,500, down 3.9 percent from $241,000 in the fourth quarter of 2020. That marked the first quarterly decrease in typical resale prices since the fourth quarter of 2018 and the largest quarterly decline since the first quarter 2011. The first quarter-of-2021 median, however, was still up from $222,000 in the first quarter of last year.
Home flipping and profit margins dropped in the first quarter of 2021 amid an ongoing housing boom that spiked housing prices but created conditions less favorable for investors.
Median values of single-family houses and condominiums shot up more than 10 percent across most of the nation last year as a rush of house hunters jumped into the market, chasing an already-tight supply of homes squeezed further by the Coronavirus pandemic that hit early in 2020. The glut of buyers came as mortgage rates dipped below 3 percent and many households sought houses as a way to escape virus-prone areas and gain space for developing work-at-home lifestyles.
That price run-up also raised the possibility that home values during the housing boom, now in its 10th year, had increased to the point where they could flatten out during the roughly six-month period most investors need to renovate and flip homes.
Two Perspectives
“It’s too early to say for sure whether home flippers indeed have gone into an extended holding pattern. But the first quarter of 2021 certainly marked a notable downturn for the flipping industry, with the big drop in activity suggesting that investors may be worried that prices have simply gone up too high,” said Todd Teta, chief product officer at ATTOM. “After riding the housing boom along with others for years, they now might be having second thoughts. Whether this is the leading edge of a broader market downturn is little more than speculation. But ATTOM will be following all market measures very closely over the coming months to find out.”
William Tessar, president of CIVIC Financial Services, offered this perspective:
“Today’s report from ATTOM reflects an interesting shift occurring in the real estate investment space. With the recent runup in home prices, fewer first-time investors are able to enter the fix-and-flip arena. That doesn’t mean the fix and flip market is gone; in fact we’re experiencing record volumes with experienced investors continuing to do high-end flips. In addition, the
market for single-family rentals is off the charts, especially as more first-time buyers get priced out of the market and plan on longer-term rental strategies. Therefore fix-and-hold is a very lucrative space for real estate investors.”
Home flipping rates down in 70 percent of local markets
Home flips as a portion of all home sales decreased from the fourth quarter of 2020 to the first quarter of 2021 in 76 of the 108 metropolitan statistical areas analyzed in the report (70.4 percent). The rate commonly dropped from about 5 percent to 3 percent. (Metro areas were included if they had at a population of 200,000 or more and at least 50 home flips in the first quarter of 2021.)
Among those metro areas, the largest quarterly decreases in the home flipping rate came in Memphis, TN (rate down 80 percent); Lakeland, FL (down 75 percent); San Francisco,CA (down 74 percent); Columbia, SC (down 73 percent) and Palm Bay, FL (down 73 percent).
Aside from Memphis and San Francisco, the biggest quarterly flipping-rate decreases in 51 metro areas with a population of 1 million or more were in Dallas, TX (rate down 72 percent); Orlando, FL (down 71 percent) and Tampa, FL (down 69 percent).
The biggest increases in home-flipping rates were in Springfield, MA (rate up 114 percent); Albuquerque, NM (up 103 percent); Springfield, IL (up 95 percent); South Bend, IN (up 86 percent) and Boston, MA (up 79 percent).
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of the nation’s population.
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