Profits in the third quarter hit a 13-year low for investors who buy houses, renovate and flip them. Data showed the fastest quarterly drop in profits since 2009 in Q3 as the market cooled off in what some describe as a real estate recession.
The recent booming housing market that enriched millions of home sellers after the start of the covid-19 pandemic showed signs of collapsing in 2022, according to real estate-related data.
As higher mortgage rates made houses less affordable for potential buyers in 2022, the share of flipped home sales has also fallen.
About 7.5 percent of home sales in the third quarter home were flips, down from 8.2 percent in the second quarter, real estate data provider ATTOM reported in a press release.
These percentages still represent historically high market share, CNBC reported. Flips, defined as homes bought and sold in a 12-month period, made up a 5.9 percent share of all home sales in Q3 2021.
In the third quarter of 2022, gross flipping profit — the difference between the median purchase price paid by investors and the median resale price — fell to $62,000, according to ATTOM. That’s down 18.4 percent from the second quarter and down 11.4 percent year-over-year — the smallest profit since the end of 2019 and the fastest quarterly drop since 2009.
While home prices fall, higher interest rates, inflation and supply shortages have weighed heavily on home and property renovation costs. Building and construction prices could surge in 2023, GoBankingRates reported. That could spell more bad news for home flippers, who make money by buying, upgrading and selling older homes at a profit.
“It’s apparent that fix-and-flip investors aren’t immune to the shifting conditions in the housing market,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “With demand from buyers weakening, prices trending down over the past few months, and financing rates significantly higher than they were at the beginning of the year, flippers face a much more difficult environment today, and probably will in 2023 as well.”
A combination of lower home prices and higher mortgage rates have caused overall home sales to fall for nine straight months. While mortgage rates have gone down slightly, this likely will not affect home flippers. About 64 percent of them pay cash for the houses they buy.
The average time it took to flip a home in the third quarter was 163 days, up from 149 days in the third quarter of 2021, according to ATTOM.
Of the five counties with the highest Q3 home-flipping rates in the U.S., four were in Georgia — Franklin County, north of Athens, (19.7 percent); Clayton County, outside Atlanta, (19.4 percent); Meriweather County south of Atlanta, (19 percent) and Lumpkin County north of Atlanta, (18.4 percent). One was in Hopkins County, Texas, east of Dallas (19.3 percent).