House Flip Rate Rises, But Investor Profits Fall

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About one in 10 U.S. homes sold in the first quarter of 2022 were flipped as investors responded to strong buyer demand. But profits from those deals have fallen to their lowest level in 13 years, according to a new report.

The report, released by real estate data analytics firm Attom, showed that 114,706 single-family homes and condos were returned in the first quarter of the year, representing 9.6% of all transactions in that period. This represents an increase from 6.9% in the fourth quarter of 2021 and 4.9% in the first quarter of 2021.

To determine the number of homes being returned, Attom looked at sales data on all arm’s length transactions — those in which the buyer and seller are not affiliated — on properties sold in the previous 12 months and at new in the first quarter of 2022.

Despite the increase in the turnaround rate, the return on investment from these transactions fell to 25.8%, its lowest level since the first quarter of 2009 and down from 38.9% a year ago.

Lower profit margins for fix-and-flip investors can be attributed to a lack of inventory, said Rick Sharga, executive vice president of market intelligence at Attom, caused in part by rising prices. mortgage rates. “People stay in their current house because they don’t want to trade a 3% mortgage for a 6% mortgage,” he said.

Inflating costs of goods and materials amid supply chain disruptions are also squeezing profits. “The other practical reason,” Mr. Sharga said, “is that foreclosure activity has been down due to government intervention.”

House flippers don’t compete with potential home buyers, he said, but rather play a crucial role in the housing ecosystem by buying and fixing distressed homes. “Most fins are professionals who do this for a living and can do the repairs more cost effectively and better than the buyer,” he said.

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