One out of every ten U.S. homes sold in the first quarter of 2022 was “flipped” - or bought and then sold within a year’s time. This is the highest level of “flips” since 2000. Home flipping has been on the rise for over a full fiscal year now, according to ATTOM, a technology company that runs a national real estate database. However, profit margins are on the decline, reflecting higher mortgage rates and labor/material costs.
In the first three months of the year, 114,706 SFR and condominiums in the U.S. were flipped, just short of 10% of home resale transactions. This is an upward trend from 6.9% in the fourth quarter of 2021 and 4.9% in the first quarter of last year. Profit margins are now much lower than a year ago, sinking to their lowest levels since 2009.
The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers. The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation, and buyers have become more selective about their purchases. “Buyers are less willing to outbid other buyers for properties they’re interested in,” said Rick Sharga, EVP of market intelligence for ATTOM. Institutional flippers are considered villains during this housing shortage, in which affordable units and “starter” homes are particularly scarce. From individuals with a few thousand dollars to private equity firms with billions, investors are chasing the best yields and are grabbing as many single family homes as they can. These investors are competing with ordinary Americans and driving up prices. “You now have permanent capital competing with a young couple trying to buy a house,” says John Burns, real estate consultant. “That is going to make U.S. housing permanently more expensive.”
The most flips are being done in Phoenix in the first quarter of 2022 with 18.7% of all home sales being flips. Next was Charlotte, N.C. at 18% and Jacksonville, FL at 16%. Two-thirds of flipped homes in the first quarter were paid in all cash. With interest rates rising, those with enough cash to cover the entire purchase are at a competitive advantage in the fix-and-flip market. It is going to be an interesting next couple of quarters seeing if the percentage of cash purchases increases over the next few quarters.