Home flips represented 5.7% of all homes sales during Q3 2021 with ROI dropping -32%.
Number of Home Flips Up
More investors were lured into buying, renovating and quickly reselling houses by fast-growing housing prices and low interest rates during Q3 2021.
According to ATTOM Data Solutions in its Q3 2021 Home Flipping Report, nearly 95,000 houses were flipped in Q3 2021. These approximately 95,000 houses represented 5.7% of all sales, an increase from 5.5% of all sales in Q2 2021.
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Return on Investment Smaller in Q3 2021
The average gross profit on a flip was just under $69,000 in Q3 2021, down -1.6% y/y.
The return on investment (ROI) during Q3 dropped by -32%, the lowest since Q1 2011. The ROI was also down -44% y/y, the largest annual drop since 2009.
As home price increases had begun to slow, supply chain disruptions in home materials and labor costs needed to renovate flipped homes were increasing during Q3 2021. According to ATTOM’s chief product officer Todd Teta said, “It’s clear that declining fortunes weren’t enough to repel investors amid a typical scenario of 32% profits before expenses on deals that usually take an average of five months to complete. We’ll see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring (investors) into the home-flipping business or start pushing them elsewhere.”
Some Flippers Shifting Their Sales Strategy
Daniel DiGiacomo, a long-time house flipper within the Baltimore area, said that the home flipping business was particularly challenging during 2021.
“The costs of holding the property longer (days on-the-market increasing), the costs of materials, the costs of the labor, everything you can imagine that stems from the rehab process has cost something in addition to what we were expecting whether it’s money or time.” DiGiacomo estimates that costs have increased some +30% compared to pre-pandemic Before Times.
Due to these cost and time increases, this Baltimore flipper now sells to investors who rent out the houses rather than owner-occupants. Because rental houses don’t need high-end finishes, DiGiacomo saves on costs/time and jacks up his profits.
DiGiacomo said, “It was easier for us to shift gears and produce a rental grad product with materials we could get locally instead of putting a little bit more luxury type product on the market.”
Flipping in 2022?
With interest rates expected to rise in 2022, the cost of buying homes destined for flipping will become more costly.
Another red flag to home flippers is lack of inventory. In November 2021, according to Redfin, for-sale inventory dropped -18% y/y. If inventory levels continue at such low levels into 2022’s pre-spring market, home flipping will become even more competitive and less profitable than it was in Q3 2021.
Thanks to CNBC, ATTOM Data Solutions and Redfin.