The number of single-family homes and condominiums flipped in the first quarter of 2020 reached 53,705 — up 7.3 percent year-over-year to its highest level since Q2 2006, according to Attom Data Solutions’ Q1 2020 U.S. Home Flipping Report.
Gross profit on the average home flip nationwide (what Attom calculated as the difference between the median sales price and the median amount paid by investors) also increased to $62,300, up from $62,000 in Q4 2019 and $60,675 in Q1 2019. However, in terms of return on investment (ROI), that figure only represented a 36.7 percent ROI on the acquisition price, the lowest profit margin for home flipping since Q3 2011. One year ago, during the first quarter of 2019, that profit margin sat at 40.9 percent ROI.
“Home flipping has gradually taken up a larger portion of the housing market over the last couple of years,” Todd Teta, chief product officer at Attom, said in a statement. “But profits are down and are lower than they’ve been since the dark days following the Great Recession, which is a sign that investors aren’t keeping up with price increases in the broader market.”
Homes flipped in Q1 2020 sold for a median price of $232,000, $62,300 above the median purchase price of $169,700. Profit margins dropped year-over-year in 54 percent of markets, however, most significantly in Fort Collins, Colorado (down 78 percent); Greeley, Colorado (down 73 percent); Springfield, Missouri (down 64 percent); Durham, North Carolina (down 62 percent); and Provo, Utah (down 50 percent).
Despite sharp declines in ROI across the U.S., home flipping rates increased in 87 percent of local markets quarter-over-quarter. Markets that saw the biggest spike in quarterly home flipping rates included Boston, Massachusetts (up 80.2 percent); Springfield, Massachusetts (up 76 percent); Olympia, Washington (up 73 percent); York, Pennsylvania (up 71.4 percent); and Minneapolis, Minnesota (up 69.3 percent).
Out of those metro areas with sufficient data to analyze, 11 out of the top 15 highest home-flipping metros were in the South. Memphis, Tennessee led the way with flipped home sales making up 14.5 percent of all sales, followed by Durham, North Carolina (13.6 percent of sales); Phoenix, Arizona (12.6 percent); Raleigh, North Carolina (12.5 percent); and Atlanta, Georgia (12.4 percent).
Home flips purchased with cash continued to rise in the first quarter to 59.5 percent of homes flipped, up from 56 percent in Q4 2019 and 53.6 in Q1 2019. Home flips purchased with financing, however, dropped to 40.5 percent of all homes flipped, down from 44 percent the previous quarter and from 46.4 percent from the year before.
The first quarter saw an increase in the percentage of flipped homes sold to buyers with loans backed by the Federal Housing Administration (FHA) to 15.3 percent of homes sold, up from 14.6 percent in the final quarter of 2019 and 13.5 percent in the first quarter of 2019.
Out of those metro areas with a population of at least 200,000 and 50 home flips in the first quarter, those with the highest percentage of FHA buyers included Stockton, California (44 percent of homes sold); Visalia, California (37.5 percent); Springfield, Massachusetts (37.1 percent); El Paso, Texas (33.3 percent); and Modesto, California (31.6 percent).
Although house flipping remains popular for now, it’s still uncertain if a demand will remain for this kind of homebuying and selling in the wake of the economic upheaval wreaked by the COVID-19 pandemic.
“[T]he coronavirus pandemic and the prospects for home flipping are notably uncertain, at least in the short term,” Teta added in a statement. “We should know a lot more in a few months about whether home prices drop and investors get hit hard, or whether they can increase their profit margins.”