Home Flipping Rate And Gross Profits Decline Across U.S. In First Quarter Of 2021
Home Flipping Rate Falls in First Quarter to Lowest Level Since 2000; Prices on Flipped Homes Drop, Leading to Smallest Profit Margin in 10 Years
IRVINE, Calif., June 17, 2021
IRVINE, Calif., June 17, 2021 /PRNewswire/ -- ATTOM, curator of the nation's premier property database, today released its first-quarter 2021 U.S. Home Flipping Report showing that 32,526 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented only 2.7 percent of all home sales in the first quarter of 2021, or one in 37 transactions – the lowest level since 2000.
The latest figure was down from 4.8 percent, or one in every 21 home sales in the nation during the fourth quarter of 2020 and from 7.5 percent, or one in 13 sales, in the first quarter of last year. The quarterly and yearly drops in the flipping rate marked the largest decreases since at least 2000.
As the flipping rate dropped, both profits and profit margins also declined. The gross profit on the typical home flip nationwide (the difference between the median sales price and the median price paid by investors) declined in the first quarter of 2021 to $63,500. That amount was down from $71,000 in the fourth quarter of 2020, although still up slightly from $62,000 in the first quarter of last year.
The slide pushed profit margin returns down, with the typical gross flipping profit of $63,500 in the first quarter of 2021 translating into a 37.8 percent return on investment compared to the original acquisition price. The gross flipping ROI was down from 41.8 percent in the fourth quarter of 2020, and from 38.8 percent a year earlier, to its lowest point since the second quarter of 2011 when the housing market was still mired in the aftereffects of the Great Recession in the late 2000s.
Profits and profit margins went down in the first quarter as median prices on flipped homes decreased quarterly for the first time in two years. Homes flipped in the first quarter of 2021 were sold for a median price of $231,500, down 3.9 percent from $241,000 in the fourth quarter of 2020. That marked the first quarterly decrease in typical resale prices since the fourth quarter of 2018 and the largest quarterly decline since the first quarter 2011. The first quarter-of-2021 median, however, was still up from $222,000 in the first quarter of last year.
Home flipping and profit margins dropped in the first quarter of 2021 amid an ongoing housing boom that spiked housing prices but created conditions less favorable for investors.
Median values of single-family houses and condominiums shot up more than 10 percent across most of the nation last year as a rush of house hunters jumped into the market, chasing an already-tight supply of homes squeezed further by the Coronavirus pandemic that hit early in 2020. The glut of buyers came as mortgage rates dipped below 3 percent and many households sought houses as a way to escape virus-prone areas and gain space for developing work-at-home lifestyles.
That price run-up also raised the possibility that home values during the housing boom, now in its 10th year, had increased to the point where they could flatten out during the roughly six-month period most investors need to renovate and flip homes.
"It's too early to say for sure whether home flippers indeed have gone into an extended holding pattern. But the first quarter of 2021 certainly marked a notable downturn for the flipping industry, with the big drop in activity suggesting that investors may be worried that prices have simply gone up too high," said Todd Teta, chief product officer at ATTOM. "After riding the housing boom along with others for years, they now might be having second thoughts. Whether this is the leading edge of a broader market downturn is little more than speculation. But ATTOM will be following all market measures very closely over the coming months to find out."
Home flipping rates down in 70 percent of local markets
Home flips as a portion of all home sales decreased from the fourth quarter of 2020 to the first quarter of 2021 in 76 of the 108 metropolitan statistical areas analyzed in the report (70.4 percent). The rate commonly dropped from about 5 percent to 3 percent. (Metro areas were included if they had at a population of 200,000 or more and at least 50 home flips in the first quarter of 2021.)
Among those metro areas, the largest quarterly decreases in the home flipping rate came in Memphis, TN (rate down 80 percent); Lakeland, FL (down 75 percent); San Francisco, CA (down 74 percent); Columbia, SC (down 73 percent) and Palm Bay, FL (down 73 percent).
Aside from Memphis and San Francisco, the biggest quarterly flipping-rate decreases in 51 metro areas with a population of 1 million or more were in Dallas, TX (rate down 72 percent); Orlando, FL (down 71 percent) and Tampa, FL (down 69 percent).
The biggest increases in home-flipping rates were in Springfield, MA (rate up 114 percent); Albuquerque, NM (up 103 percent); Springfield, IL (up 95 percent); South Bend, IN (up 86 percent) and Boston, MA (up 79 percent).
Typical home flipping returns drop in almost two-thirds of markets
The median $231,500 resale price of home flips nationwide in the first quarter of 2021 generated a typical gross flipping profit of $63,500 above the median investor purchase price of $168,000. That gross-profit figure was down from $71,000 in the fourth quarter of 2020, decreasing the typical return on investment in the first quarter of 2021 to 37.8 percent.
Profit margins dipped from the first quarter of 2020 to the first quarter of 2021 in 66 of the 108 metro areas with enough data to analyze (61.1 percent). Markets with the biggest declines were Savannah, GA (return on investment down 80 percent); Tuscaloosa, AL (down 76 percent); Salisbury, MD (down 73 percent); Evansville, IN (down 71 percent) and Davenport, IA (down 68 percent).
Among metro areas with a population of at least 1 million, the biggest quarterly investment-return decreases during the first quarter of 2021 were in Memphis, TN (ROI down 64 percent); Austin, TX (down 54 percent); Houston, TX (down 50 percent); New Orleans, LA (down 38 percent) and Louisville, KY (down 37 percent).
Metro areas with the biggest quarterly increases in profit margins during the first quarter of 2021 included Springfield, MO (ROI up 120 percent); Provo, UT (up 118 percent); Omaha, NE (up 101 percent); Lynchburg, VA (up 101 percent) and Pittsburgh, PA (up 88 percent).
Investors sell for at least double their purchase price in only five markets
Median resale prices on home flips in the first quarter of 2021 were at least twice the median investor purchase price in only five of the 108 metro areas with enough data to analyze (4.6 percent).
They were led by Pittsburgh, PA (225.6 percent return, up from 120.1 percent in the first quarter of 2020); Springfield, IL (119.5 percent return, up from 74.6 percent a year ago); Chattanooga, TN (104.6 percent return, up from 93 percent a year ago); Philadelphia, PA (103.5 percent return, down from 104.1 percent a year ago) and Fayetteville, NC (100 percent return, down from 131 percent a year ago).
The smallest first-quarter-of-2021 profit margins on typical home flips were in Austin, TX (9.2 percent return, down from 19.8 percent a year ago); Boise, ID (9.4 percent return, down from 25 percent a year ago); Evansville, IN (10 percent return, down from 35.1 percent a year ago); Houston, TX (10.2 percent return, down from 20.6 percent a year ago) and Raleigh, NC (12.9 percent return, up from 10.2 percent a year ago).
Raw profits still highest in the West, Northeast and South; lowest in the Midwest and South
The highest raw profits in the first quarter of 2021, measured in dollars, were again concentrated in the West, Northeast and South. Among metro areas with enough data to analyze, the top 20 all were in those regions, led by New York, NY (gross profit of $166,375); Pittsburgh, PA ($152,041); Los Angeles, CA ($145,000); San Francisco, CA ($139,250) and San Diego, CA ($136,000).
Nineteen of the smallest 20 raw profits were spread across southern and midwestern metro areas, with the lowest in Gulfport, MS ($11,594 profit); Evansville, IN ($14,100); South Bend, IN ($18,000); Houston, TX ($24,486) and Austin, TX ($27,950).
Home flips purchased with cash tick upward
Nationally, the portion of flipped homes in the first quarter of 2021 that had been purchased with cash by investors rose to 59.2 percent, up from 57.7 percent in the fourth quarter of 2020, although still down from 59.9 percent a year ago. Meanwhile, 40.8 percent of homes flipped in the first quarter of 2021 had been bought with financing. That was down from 42.3 percent figure in the prior quarter, but still up from 40.1 percent a year earlier.
Among metropolitan statistical areas with a population of 1 million or more and sufficient data to analyze, those with the highest percentage of flips in the first quarter of 2021 that had been purchased with cash by investors included Detroit, MI (82.3 percent); Pittsburgh, PA (77.3 percent); Cleveland, OH (74.6 percent); Charlotte, NC (72.5 percent) and Tampa, FL (72.3 percent).
Average time to flip nationwide drops to smallest number since 2013
Home flippers who sold homes in the first quarter of 2021 took an average of 159 days to complete the transactions, the lowest level since the third quarter of 2013. The latest number was down from an average of 175 in both the fourth quarter and first quarter of 2020.
FHA buyers purchase smaller portion of flipped homes
Of the 32,526 U.S. homes flipped in the first quarter of 2021, 10 percent were sold to buyers using loans backed by the Federal Housing Administration (FHA), down from 11.6 percent in the prior quarter and from 14.7 percent in the first quarter of 2020.
Among the 108 metro areas with a population of at least 200,000 and at least 50 home flips in the first quarter of 2021, those with the highest percentage of flipped properties sold to FHA buyers — typically first-time home buyers — were Philadelphia, PA (24.3 percent); Bakersfield, CA (24.1 percent); Hartford, CT (23.6 percent); Tulsa, OK (22.4 percent) and Brownsville, TX (21.1 percent).
Only 57 counties had a home flipping rate of at least 10 percent
Home flips accounted for more than 10 percent of all sales in 57 of the 677 counties around the U.S. with at least 10 home flips in the first quarter of 2021. The top five were McCurtain County, OK (outside Texarkana, AR) (18.5 percent); Montgomery County, IN (outside Indianapolis) (14.3 percent); Greene County, AR (outside Jonesboro) (13.4 percent); Coshocton County, OH (13.2 percent) and Crisp County, GA (outside Albany) (13.1 percent).
ATTOM analyzed sales deed data for this report. A single-family home or condo flip was any arms-length transaction that occurred in the quarter where a previous arms-length transaction on the same property had occurred within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property's after-repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the first sale (purchase) price.
ATTOM provides premium property data to power products that improve transparency, innovation, efficiency and disruption in a data-driven economy. ATTOM multi-sources property tax, deed, mortgage, foreclosure, environmental risk, natural hazard, and neighborhood data for more than 155 million U.S. residential and commercial properties covering 99 percent of the nation's population. A rigorous data management process involving more than 20 steps validates, standardizes, and enhances the real estate data collected by ATTOM, assigning each property record with a persistent, unique ID — the ATTOM ID. The 20TB ATTOM Data Warehouse fuels innovation in many industries including mortgage, real estate, insurance, marketing, government and more through flexible data delivery solutions that include bulk file licenses, property data APIs, real estate market trends, and more. Also, introducing our latest solution, that offers immediate access and streamlines data management – ATTOM Cloud.
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