Thursday, November 30, 2023

Home flipper profits are slowing at their fastest pace since 2009

  • Last quarter sawThe fastest drop in home flipping profit Since the Great Recession.
  • Flips on higher-end properties Total returnsFor the industry.
  • The lowest returns were seen in sunny, warm places like Honolulu, while cities like Buffalo saw the greatest.

It’s the worst time for home flippers since the Great Recession. 

While people were flipping homes last quarter at the third fastest rate of the past decade, profits from the typical flip plunged by $14,000 — or 18.4% — to $62,000 from the previous period, according to real estate data provider Attom. Attom reported that it was the sector’s fastest quarterly decline rate, since the US was entering recession in early 2009 and this signals trouble for next year.

The gross profit was not at a three year low, but margins plummeted to 25% last quarter, the lowest level since 2009, and less than half of the 53.1% seen at 2016’s top market.

Home flippers’ sliding fortunes may be due to the house flipping model itself: Sell as quickly as possible, even though it means making less than expected or even losing money, Rick Sharga, head market intelligence at Attom, said to Insider.

Sharga said, “If you are a flipper time is your enemy.” Though flippers are facing a rapidly deteriorating housing market, “you don’t want to buy a property and then have to wait to sell it because that time costs you money —  financing, taxes, insurance, maintenance,” he said.

Sharga stated that nobody knows what tomorrow holds. He said that the market could continue to move against flippers and cause even more setbacks.

That sentiment was what led to Houston flipper John ZiomekHe sold a project in July for $50,000 less that he expected, at a price he claimed was no margin, according to Insider in October. Ziomek was happy with the profits he made over the past decade and decided to retire to the sidelines.

It’s more difficult to make a profit with high-end properties

However, not all flippers are suffering.

Sharga says that it seems that higher-priced properties are dragging down overall numbers. He stated that the largest slump in demand is seen in homes that sell for $750,000 – $1.5 million in the most expensive parts of the country. Therefore, flippers of such properties are feeling the pain. 

Sharga repeated the words of a flipper, saying, “The high-end market has basically vanished, there’s not anything there.” He was, as he said, “writing checks” to get a few properties off his books.” 

Sharga stated that lower-tier home flips have the same strength as they did a year ago. He stated that these flippers make a healthy profit margin, even though the dollar amounts aren’t quite as high as luxury homes. 

Some of the most desirable places to live in 2021 are experiencing the greatest dropoff

As is the case with most of the national real estate market — every local market is different. The data shows that areas that had all the characteristics of a pandemic-prone area were among the worst places for flipping a home in the quarter ended September.

According to data, home flippers in sunny areas like Honolulu or Jackson, Mississippi didn’t make even a 1% profit on their renovation projects. Meanwhile, flippers in cities with harsh winters like Pittsburgh — where the typical flipper made a 116.9% profit — and Buffalo, New York, had the largest returns. 

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