By Kerry Smith
Higher interest rates took a bite out of profits, even as home-flipping hit its highest rate in 15 years. But Orlando ranked high for both flips and profits.
IRVINE, Calif. – Attom’s 2022 U.S. Home Flipping Report finds that 407,417 U.S. single-family homes and condos were flipped in 2022 – up 14% from 2021 and up 58% from 2020, hitting the highest point since at least 2005.
Of all 2022 U.S. home sales, investors purchased 8.4%, or close to one in 10. That’s an increase of 5.9% compared to 2021 and 5.8% in 2020.
But 2022 profit margins are another story, according to Attom. Gross profit margins on home flips sank to their lowest level since 2008 following the second major drop in two years.
Homes flipped in 2022 typically generated a gross profit of $67,900 nationwide – the difference between the median sales price and the median amount originally paid by investors. That’s down 3% from $70,000 in 2021 and translates into just a 26.9% return on investment (ROI) compared to the original acquisition price. It’s down from 32.6% in 2021 and 41.9% in 2020.
Attom calculates the ROI without accounting for mortgage interest, property taxes, renovation expenses and other holding costs.
Investors saw profit margins drop for the fifth time in the past six years, largely because the median value of the homes flipped rose more slowly than the median price they paid to purchase properties – 12% versus 17%.
“Last year, home flippers throughout the U.S. experienced another tough period as returns took yet another hit. For the second straight year, more investors were flipping but found no simple path to quick profits,” says Rob Barber, chief executive officer at Attom.
Barber says returns have hit a point where “they could easily be wiped out by the carrying costs during the renovation and repair process, which usually accounts for 20 to 33% of the resale price.”
Only one Florida city made Attom’s list of top cities for home flipping growth – Orlando – which also topped the list for ROI.
Among the 25 largest increases in annual flipping rates in metros with a population of at least 200,000, 20 were in the South and West. They were led by Burlington, Vermont (rate up 283.7%); Prescott, Arizona (up 183.1%); Bremerton, Washington (up 182.7%); Jackson, Mississippi (up 176%) and Honolulu, Hawaii (up 172.6%).
Honolulu also topped the list of flipping rate increases for metros with at least 1 million people, which includes Orlando:
- Honolulu: Up 172.6%
- Sacramento, California: Up 116.4%
- Atlanta: Up 94.3%
- Minneapolis: Up 72.8%
- Orlando: Up 72.2%
The only metro areas with fewer home flips in 2022 were New Orleans (down 8.2%) and Green Bay Wisconsin (down 2.9%).
Nationally, the percentage of flipped homes purchased with financing decreased in 2022 to 35.2%, down from 35.9% in 2021 and from 41% in 2020.
2022 return on investment
The gross profit margin on the typical home flip fell to 26.9% – the smallest investment return since at least 2005. The ROI on median-priced home flips dropped 15 percentage points since 2020 and 24 points since 2016.
Margins fell as the median nationwide resale price on flipped homes increased just 12.3% – from $285,000 in 2021 to $320,000 – in 2022. But the price investors paid for homes rose 17.3%.
The typical home-flipping investment return decreased from 2021 to 2022 in 168 (77%) of the 218 metro areas analyzed.
In metros with at least a million people, Orlando also ranked in the top 5 for returns on investment in 2022 compared to 2021:
- Cleveland: ROI up from 26.8% in 2021 to 41.4% in 2022
- New Orleans: Up from 54.1% to 64.6%
- Cincinnati: Up from 38.4% to 47.4%
- Honolulu: Up from 5.7% to 7.4%
- Orlando: Up from 17.6% to 18.7%
Other 2022 home flipping takeaways
•Flips took an average of 164 days (about 5 ½ months) to complete, up from 152 days in 2021 but down from 182 days in 2020.
•8.4% of 2022 flips were sold to buyers using a Federal Housing Administration (FHA) loan – up slightly from 8% in 2021 but below 13.9% in 2020.
•More than 200 counties had a home flipping rate of at least 10% in 2022
“While declining margin is certainly a cause for caution, it is important to remember that these numbers are somewhat backward looking in that they reflect dispositions of properties that were acquired in 2021 or early 2022 amidst the Covid-induced bidding wars in many locales,” says Maksim Stavinsky, co-founder and president of Roc360.
“On the other hand, it is encouraging that investors were able to clear in excess of four hundred thousand properties – the most ever – in an environment of rising interest rates, without a meaningful increase in project timelines,” he adds.
© 2023 Florida Realtors®
