Home for sale sign in Boulder, Colorado.
Helen H. Richardson | Denver Post | Getty Images
It’s a lot harder to find a cheap home to buy and turn around in today’s ultra-competitive housing market, but those who can will make a hefty profit.
While house flipping activity generally declined in the third quarter of this year, the gross yield for flippers rose to its highest level in 20 years, according to a new report from ATTOM Data Solutions. The report counted 57,155 single-family homes and condominiums in the United States flipped in the third quarter of 2020.
A flip is defined as a home that has been bought and sold in the same 12-month period. Those flips accounted for 5.1% of all home sales during the quarter, up from 6.7% in the second quarter and 5.5% in the third quarter of 2019, the report said.
The decline in activity was probably due to the severe shortage of homes for sale, especially at the lower end of the market, where flippers generally like to play.
According to the National Association of Realtors, sales of homes priced below $ 100,000 were down 22% year on year in October. Prices between $ 100,000 and $ 250,000 were basically flat. Meanwhile, sales of more expensive homes, between $ 500,000 and $ 750,000, were up more than 60%.
The median price of a national home flipped in the third quarter was $ 240,000.
While the home flipping rate declined during that time, gross profit on the typical flip (the difference between the median selling price and the median investor price) rose to $ 73,766, up from $ 69,000 in the second quarter and $ 61,800 in the third quarter. last year’s quarter, according to ATTOM.
This does not include money that investors put into the home, such as repairs and renovations, before it is sold.
Gross profit was the highest since 2000, when ATTOM started tracking this data. Due to the increase in profit, the typical return on investment increased to 44.4%.
Coronavirus pandemic is profitable
ATTOM attributes the profit to the effects of the deadly coronavirus pandemic that brought much of the nation and the world to a halt in the spring and kept people largely at home until 2020.
“All of this happened in the context of the pandemic, which has created unusual conditions for the housing market to flourish, and so is the home-flipping business,” said Todd Teta, chief product officer at ATTOM Data Solutions. “Today, there is too much uncertainty to say whether the latest trends will continue. But for now, the outlook remains on the lookout for home flipping after a period where they turned in the opposite direction.”
Profits from house flipping had fallen in the few years leading up to the pandemic as house price increases slowed. Demand for homes rose again from May, partly due to pent-up demand from the spring, when home sales almost stopped cold. After that, it continued to grow, as the stay-at-home culture created by the pandemic caused more people to want larger, suburban homes for work and education.
Record low mortgage rates have also brought in more buyers and made it more competitive for flippers. About 57% of the games use all the money, but they cannot always outbid with financing.
“Low interest rates and low inventories have made flip acquisitions challenging, resulting in a 50% reduction in the number of flips we currently manage,” said Vipin Motwani, director of Iron Gate Development in the Washington DC Metropolitan Area. . “At the same time, those same two factors have also led to house prices rising, which in turn has led to a price increase of 5% to 10% over the original forecast.”
Locally, investors saw the largest reversal of annual profit margin increases in Raleigh, North Carolina; Phoenix; Kansas City, Missouri and Las Vegas.
The smallest profit margins were in Boulder, Colorado, Corpus Christi, Texas; Hilton Head, South Carolina; Reno, Nevada and Killeen, Texas.
The highest dollar sales were in San Jose, California ($ 290,000), Ventura, California ($ 180,000); Bridgeport, Connecticut ($ 177,500); Los Angeles ($ 161,500) and San Francisco ($ 158,500).
The smallest were in Corpus Christi, Texas ($ 14,817 profit); Hilton Head, South Carolina ($ 24,000); Killeen, Texas ($ 26,197); El Paso, Texas ($ 27,116) and Lubbock, Texas ($ 28,869).