Even as home prices rise in the stratosphere, house flipping remains an active effort, accounting for just under 6% of all home sales transactions in the third quarter of this year. A flip is defined as any arm’s length transaction in the quarter within 12 months of a previous arm’s length transaction on the same property.
ATTOM reports that there were 94,766 single family homes and inverted condominiums in the third quarter, 1 in 18 transactions. This is the second consecutive quarter that the turnaround increased after a full year of decline and was a an increase of just over 5% from the second quarter of this year and the third quarter of 2020.
But ATTOM Home turnaround report in the United States also shows that typical gross profits have remained lower than they were a year ago and, more importantly, profit margins have fallen to their lowest point since early 2011. The average turnaround gross profit is the difference between the purchase price and the returned price. The calculations do not include rehabilitation costs and other expenses incurred. Rollover veterans estimate these costs to be typically between 20% and 33% of the property’s after repair value. The gross turnaround return on investment (ROI) is calculated by dividing the gross turnaround profit by the original purchase price.
Among all flips nationwide, typical gross profit stood at $ 68,847, up 2.7% from $ 67,008 in the second quarter of 2021. However, it was 1.6% below the level of $ 70,000 recorded in the third quarter of 2020.
Profit margins fell for the fourth consecutive quarter. This gross profit of $ 68,847 translated into a return on investment of only 32.3% over the original purchase price. The national gross return on investment fell from 33.2% in the second quarter of 2021 and from 43.8% a year earlier, to its lowest level since the first quarter of 2011. ATTOM says the annual decline in the typical profit margin was the largest since early 2009, when the housing market collapsed under the impact of the Great Recession.
The decline in profit margins was the soaring prices paid for the acquisition, a median of $ 213,000. Resale prices also rose to a median of $ 281,847, an all-time high. This is an increase of 4.8% from $ 269,000 in the second quarter of 2021 and 22.5% from $ 230,000 a year earlier. This annual increase was the largest for returned properties since 2005, while the quarterly gain was the second largest since 2015. However, the gains in resale prices did not exceed the increases investors were absorbing – 5.4% per quarter and 33.1% per year – when they bought the homes that were sold in the third quarter of this year.
“The home turnaround produced another set of competing trends in the third quarter of this year as more investors stepped into the action but benefited less,” said Todd Teta, chief product officer at ATTOM. “Clearly, falling fortunes were not enough to push investors back into a typical scenario of 32% earnings before expenses on transactions that typically take five months on average. We’ll see over the next few months if the amount they can make on these quick turnaround times will still be enough to continue to draw them into the home turnaround business or start pushing them elsewhere. “
The turnaround increased its share of third-quarter home sales in 142 of 195 metropolitan statistical areas analyzed in the report (73%), although the increase was typically less than 1%. The metropolitan areas with the highest turnaround rates, all between 9-10%, included Ogden and Salt Lake City, Utah; Phoenix, Arizona; Salisbury, Maryland; and Laredo, Texas.
Amateur swimmers who sold properties in the third quarter of 2021 took a on average 147 days to complete transactions, the smallest turnaround time since Q3 2010. The latest figure was down from an average of 148 in the second quarter of 2021 and 189 in the third quarter of 2020.
The share of homes converted in the third quarter that were acquired as all-cash purchases increased to 60.4%, from 59.4% in the previous quarter and 57.7% in the third quarter of 2020.