Home flipping profits fell across the country in 2021 despite a surge in the number of houses flipped, according to ATTOM Data Solution’s 2021 U.S. Home Flipping Report.
The number of single-family homes and condos flipped in 2021 was 323,465, up from 257,091 in 2020 (+26%). This is the largest number of flips since nearly 334,000 homes were flipped by investors in 2006.
In Q4 2021, there were 96,773 homes flipped, a rate of 6.8%.
But flips accounted for only 5.5% of all home sales last year, falling in 53% of the markets analyzed by ATTOM. They are down from 5.5% in 2020 and 6.1% in 2019.
The Northeast and West saw the biggest declines in number of homes flipped. In Honolulu, HI, flip rates were down 83%, followed by Atlantic City (-73%), Manchester, NH (-57.7%), and Rochester, NY (-48%).
Texas and Utah overwhelmed the list of metros with the highest flip rates. Provo, UT (+114.3%) lead the pack, followed by Salt Lake City (+113.4%), Austin, TX (+111.2%), College Station, TX (+97.4%), and Ogden, UT (+95%).
Gross profit margins on flips dropped to their lowest level in over a decade. Investors saw the value of their properties rise more slowly than what they paid for them. The typical profit on a flip was $65,000, down 3% from 2020 and just a 31% return on investment. It’s the steepest drop in ROI since at least 2005.
“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” said Rick Sharga, ATTOM’s executive vice president of market intelligence.
“Fewer flippers financed their purchases, so their cost of capital was lower. And it took less time to execute a flip, reducing holding costs, and suggesting that less extensive – and less expensive – repairs were needed to bring the properties to market. A lot of the mark-up on fix-and-flip properties historically has come from the value of those repairs, but so have a lot of the costs that reduce net profits.”
Investors financed 37% of flipped homes in Q4 2021, down from 39.1% in Q3 and 42.6% YOY. Cash purchases jumped to 63% in Q4 from 60.9% in Q3 and 57.4% the year prior.
Sharga noted that cash investors have an advantage over traditional homebuyers, creating affordability issues that may reduce competition in the market overall.
Investor purchases have come under scrutiny as the affordability crisis rages on. In Atlanta, investors purchased almost one of every three homes sold in Q4 2021, a 74.4% YOY increase.
A California bill recently introduced by Assemblymember Chris Ward would impose 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%.
“When investors fall out of the buying pool, that will give regular home buyers a chance to buy a home,” Ward said.