ATTOM Data Solutions released its third-quarter 2019 U.S. Home Flipping Report, which shows that 56,566 U.S. single family homes and condos were flipped in the third quarter of 2019, down 12.9 percent from the previous quarter and down 6.8 percent from a year ago. After an unusually lively flipping market in the spring of this year, the declines stood out as the largest quarterly and annual drops since the third quarter of 2014.
The homes flipped in the third quarter represented 5.4 percent of all home sales during the quarter. That level was down from 6 percent of all home sales in the second quarter of 2019, but up slightly from 5.2 percent a year ago.
Homes flipped in the third quarter of 2019 typically generated a gross profit of $64,900 (the difference between the median sales price and median paid by investors), up 1.8 percent from the previous quarter and 3.5 percent from a year ago.
However, the typical gross flipping profit of $64,900 translated into a 40.6 percent return on investment compared to the original acquisition price, down from a 41.1 percent gross flipping ROI in the second quarter of 2019 and down from a margin of 43.5 percent in the third quarter of 2018. The latest returns on home flips stood at the second-lowest point since 2011, barely above the 40 percent ROI from the first quarter of this year.
“After a springtime selling binge earlier this year, the home-flipping business settled way down over the summer amid a continuing scenario of languishing profits,” said Todd Teta, chief product officer at ATTOM Data Solutions. “The retreat back to more normal levels of sales comes amid broader market forces that are making it harder and harder for investors to complete the kinds of deals they were getting as recently as last year. Those forces are keeping profits way down from post-Recession highs and show no signs of easing.”
Maksim Stavinsky, co-founder and COO of Roc Capital noted that borrowers’ declining profits on flips are leading to much greater interest in renting out renovated properties instead of flipping them.
“We have been seeing a decline in projected and realized profits for borrowers on projects, despite the fact that borrower financing costs have been meaningfully coming down,” said Stavinsky. “This has led to much greater interest and activity in our rental programs. We expect these trends to continue.”