Flippers now account for no less than 10% of home sales

One in 10 homes sold in the United States in the first quarter of 2022 were “flipped” – or bought and sold in one year by an arm’s length buyer – the highest level since 2000.

Why is this important: As rising home prices have turned house flipping into a blood sport, profit margins are shrinking, reflecting rising mortgage rates and rising labor and material costs.

Driving the news: Returning home has been on the rise for five straight quarters, according to ATTOM, which maintains a national real estate database.

  • In the first three months of the year, 114,706 single-family homes and condominiums in the United States were returned, representing 9.6% of home resales transactions.
  • This figure was up from 6.9% in the fourth quarter of 2021 and 4.9% in the first quarter of last year.
  • But gross profits from those deals were lower than a year ago and profit margins fell to their lowest level since 2009, ATTOM said.

What they say : “The good news for fix-and-flip investors is that demand remains strong from potential buyers,” said Rick Sharga, executive vice president of market intelligence at ATTOM.

  • “The bad news is that rising mortgage interest rates are starting to slow home price appreciation rates and buyers have become more selective,” he added.
  • Buyers are “less willing to outbid other buyers for properties they are interested in,” Sharga said, adding, “This has a predictable impact on profit margins for investors.”

The big picture: Institutional pinball machines are often seen as the big bad guys in the nation’s acute housing shortage, in which affordable housing and “starter” homes are especially scarce.

  • “From individuals with smartphones and a few thousand dollars, to pension and private equity firms with billions, yield-seeking investors are snapping up single-family homes to rent or flip,” the Wall Street reported. Newspaper last year.
  • They are “competing for homes with regular Americans” and driving up prices, the Journal said.
  • “You now have permanent capital competing with a young couple trying to buy a house,” John Burns, a real estate consultant, told the Journal, adding, “It’s going to make American housing permanently more expensive.”

Other factors – such as lackluster new home construction and the rising cost of lumber – have also played a huge role.

  • A 2021 Freddie Mac analysis estimated the national housing unit shortage at 3.8 million, while a National Association of Realtors report from the same year found an “underconstruction gap” of 5 .5 to 6.8 million units since 2001.

Where they return: Phoenix won the flip prize for the first quarter of 2022: 18.7% of all home sales were flipped there.

  • This is followed by Charlotte, North Carolina (18%); Tucson, Arizona (16.2%); Atlanta, Georgia (16.1%); and Jacksonville, Florida (16%).

Where they are not: Olympia, Wash., had the lowest return-to-home rate of the metro areas analyzed by ATTOM: 4.4%.

  • Next in line were Portland, Maine (4.6%); Salem, Oregon (4.7%); Syracuse, New York (4.7%); and Davenport, Iowa (4.9%).

By the numbers: As starry-eyed investors continue to stare and flip, their ROI dwindles: Typical returns decreases in three-quarters of metropolitan areas, ATTOM said.

  • Flipped homes resold at a median price of $327,000 in the first quarter of 2021. This represents a gross profit of $67,000 above the median investor purchase price of $260,000, which translates to a margin beneficiary of 25.8%.
  • But profit margins shrank in the first quarter of 2022 from the previous quarter in 73% of metro areas with enough data to analyze, ATTOM said.

Most investors pay cash for the homes they flip. Nearly two-thirds of houses reversed in the first quarter — 62.7% — had been purchased by pinball machines without financing.

  • This is virtually unchanged from the previous quarter (62.9%) and slightly up from 60.9% in the first quarter of 2021.
  • As interest rates rise, “cash buyers should be in an even better position in the fix-and-flip market,” Sharga said. “It will be interesting to see if the percentage of cash purchases and purchases made by larger, better capitalized investors increases in the coming quarters.

And after: The fix-and-flip market is expected to cool alongside the broader real estate market as mortgage rates rise, house prices soften, and labor and building materials remain scarce.

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