Investors responded to strong demand from buyers, reversing about one-tenth of US homes sold in the first quarter of 2022. However, profits on these transactions have fallen to their lowest levels in 13 years, new reports show.
ReportPublished by real estate data analytics firm Attom, it shows the reversal of 114,706 single-family homes and condominiums in the first quarter of this year. This represents 9.6% of all transactions during that period. This has increased from 6.9% in the fourth quarter of 2021 to 4.9% in the first quarter of 2021.
To determine the number of overturned homes, Attom has traded all arm lengths (buyer and seller partner) for properties sold in the last 12 months and the first quarter of 2022. I looked up the sales data for (not transactions).
Despite the rise in flip rates, the return on investment in these transactions fell to 25.8%. This is the lowest level since the first quarter of 2009, down from 38.9% a year ago.
Rick Sharga, Executive Vice President of Market Intelligence at Attom, said the decline in profit margins for “fix and flip” investors was due to a shortage of stock, partly due to rising mortgage rates. “People don’t want to exchange a 3 percent mortgage for a 6 percent mortgage, so they’re staying at their current home,” he said.
Inflated costs of goods and materials in the turmoil of the supply chain are also reducing profits. “Another practical reason is that government intervention has significantly reduced foreclosure activity,” Sharga said.
He said home flippers play a key role in the home ecosystem by buying and repairing bad homes rather than competing with home buyers. “Most flippers are professionals who can do this for their living, cost-effectively and make better repairs than the buyer,” he said.
