Flipping The Script: Home Flipping Activity Drops As Profits Rise

In a twist worthy of a reality TV plotline, house flipping experienced a dip in activity during the second quarter even as home prices soared.

Even the market's most daring investors are trading their nail guns for calculators as they grapple with the real estate riddle — in a hot housing market, why are property flippers playing it cool?

Home flips accounted for 8% of all home sales from April through June — nearly the lowest rate since 2021, according to real estate data provider ATTOM's second-quarter 2023 U.S. Home Flipping Report. That's down from 9.9% of all home sales during the first quarter and from 8.9% in the second quarter of last year.

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Although flipping activity declined, the report found that investor profits and profit margins showed signs of recovering from a slump that had slashed them by more than half in just two years. While still below the peaks hit in 2021, the typical profit market rose nearly five percentage points from the first to the second quarter. Raw profits shot up 18% quarterly.

"Fortunes for investors who flip homes for quick profits are showing more signs of turning around after a long and unusual period when they went down while the rest of the market went up," ATTOM CEO Rob Barber said. "However, the latest investment returns may not be substantial enough to cover the holding costs on typical deals."

The typical transaction's gross profit — the difference between the median purchase price investors paid and the median resale price — increased to $66,500 in the second quarter. That's still down 35% from $102,063 in the second quarter of 2022 and one of the lowest points in the last five years. But it's up from $56,250 in the first quarter.

The typical resale price on flipped homes increased 2.1% to $308,500 between the first and second quarters compared to a 1.6% decline in median prices that recent flippers were seeing when they were buying their properties to when they sold them.

"It's still too early to declare the profit downturn over, as much will depend on whether the second-quarter market surge keeps going or whether it retreats again like last year," Barber said.

Investors paid cash for 62.6% of homes flipped in the second quarter, down from 66% in the first quarter but about the same as the 62.7% in the second quarter of 2022. Meanwhile, 37.4% of homes flipped in the second quarter were purchased with financing, up from 34% in the previous quarter but unchanged from 37.3% a year ago.

"The second-quarter dip in all-cash flips came during a brief period when mortgage rates were declining a bit after spiking during the prior year," Barber said. "With rates now rising again, there will be more pressure on investors to use cash to finance their activity. The third quarter should reveal more about that trend."

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