Over the past two and a half years, home flipping was a great money-making business. Investors bought homes and sometimes upgraded them to sell them at higher prices. Since home prices nationwide rose almost every month, people who undertook the process made obscene amounts of money. A new study shows that this period is over and home flipping has become a financial danger.
ATTOM, the real estate research company, recently published its third-quarter home flipping report. The data for Home Flipping Declines Again Across U.S. During Third Quarter of 2022 as Investor Profits Hit 13-Year Low covers 94,022 single-family homes and condominiums, which was 7.5% of all such transactions during the period.
Thirteen years ago was a terrible time for homeowners, because the Great Recession brutalized the housing market. As interest rates now rise and homes become less affordable, there is a concern prices will plunge again. Because there are so few variable-rate mortgages, almost no one believes the problem will be as great as in 2007 to 2010.
Rick Sharga, Executive Vice President of Market Intelligence at ATTOM, described the challenge, “While flipping activity in the third quarter was among the highest on record, gross profits and profit margins declined significantly, reflecting the overall pricing weakness in today’s housing market.”
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The gross profit for flipped homes dropped to $62,000 from $76,000 in the second quarter. In a few of the covered markets, investors either lost money or made nearly nothing. In Jackson, Mississippi, the flippers had a 0.4% loss. In Honolulu, the loss was 0.3%. Flippers made only $0.1% in Boise, one of the fastest-growing markets over the past three years.
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The fate of people who flip homes probably will worsen in the next few quarters. Based on interest rate increases by the Federal Reserve, mortgage rates also are expected to rise.
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