Home flipping rates are falling as profit margins soar, according to new data from ATTOM.
Flipped homes accounted for 8.9% of all U.S. home sales in Q2 2023, down 1% from the prior quarter and nearly the lowest rate since 2021.
In total, 84,350 single-family homes and condominiums were flipped in the second quarter.
At the same time, raw flipping profits increased 18% from Q1, the largest spike in the past decade. Typical profits also increased at the fastest quarterly pace in three years.
The profit upswing comes on the heels of an “extended slump” that cut profits in half in the last two years.
Though they remain far below 2021’s peaks, last quarter’s profits represent a rebound for home flippers that mirrors the broader trend of price hikes. The single-family median home price shot up 10% as shopping picked up in spring, reversing declines that began in the middle of 2022.
“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, ATTOM CEO.
“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.”
Zillow Chief Economist Skylar Olsen said that the “get rich quick” mentality of some home flippers no longer works in the high-rate environment.
And with home prices also on the rise, investors have to shell out a lot of money upfront for a fixer-upper. Even if profits are up, the barriers to entry are high.
Another problem is locked-in homeowners who won’t leave their current house until rates fall. Flippers on the hunt for new stock must compete over the same limited stock, restricting their options.
Investor purchases have come under scrutiny as the affordability crisis rages on. Though investor purchases fell 45% YOY in Q2, those who remain are gravitating toward the stater- and mid-priced market, where competition remains wild.
A California bill introduced last year imposes a 25% tax on the profits of homes sold within the first three years after purchase. The bill targets home flippers, which it says are responsible for more than half of home sales in Southern California. Nationally that number is 18%.
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