It's not looking great for home flippers. Not only are distressed properties (and all types of housing inventory, for that matter) at record lows, but new data shows that flipping profits have declined as well.
According to the Q2 2021 U.S. Home Flipping Report from ATTOM Data Solutions, profit margins are at a 10-year low for home flippers. The typical gross profit in the second quarter was $67,000 -- a mere 33.5% ROI compared to the original purchase price. That's down considerably compared to past years. In Q1 2021, ROIs sat at around 37%. A year ago, they were a whopping 40.6%.
According to ATTOM, it's the "lowest point since the first quarter of 2011, when the housing market had yet to start recovering from a price slump brought on by the Great Recession in the late 2000s."
The culprit is clearly skyrocketing home prices. The median home sale price of flipped homes rose to $267,000 last quarter -- an all-time high. Those prices are up nearly 19% over the year -- hardly enough to make up the 25% jump in purchase price investors have dealt with on the front end.
"That gap -- prices rising more on purchase than resale – led to profit margins dropping," ATTOM reported.
Low levels of inventory (particularly foreclosures and other distressed properties) and rising competition -- both from investors and traditional homebuyers -- aren't helping things either.
ATTOM's data shows that flipping rates increased in 144 out of the 182 biggest markets in Q1, indicating an uptick in competition across most of the country.
Flippers face the most competition in Savannah, Georgia, where flips made up a whopping 9.5% of all home sales last quarter. Fort Wayne, Indiana; Canton, Ohio; Ogden, Utah; and Indianapolis also saw big jumps in flips.
Exceptions to the rule
Sadly, not every market saw the quarter's average 33% return -- however small it may be. In fact, flippers in some cities saw ROIs only a fraction of that.
For example, in Gulfport, Mississippi, the typical flipper took a 7.8% loss on their investments. In Corpus Christi, Texas, they made a mere 0.7% -- hardly enough to justify the time commitment a home flip requires.
Fortunately, there are still some markets where flippers can really cash in. In Oklahoma City, flippers in Q2 made a 196% ROI on average.
Other cities to see above-100% returns included Fargo, North Dakota; Omaha, Nebraska; Pittsburgh and York, Pennsylvania; and Philadelphia.
The Millionacres bottom line
Things aren't looking too sunny for those in the flipping game. Fortunately, as mortgage forbearance options end, more distressed properties may start to hit the market. This could help reduce home prices and allow investors to turn a better profit post-renovation. (Lower labor and materials costs would help a lot, too!)