From Flip To Flop: Home Flipping Takes a Dive, Marking Fastest Decline In 15 Years
Home flipping, once a booming investment strategy promising lucrative returns, has experienced a significant downturn, marking its fastest pace of decline in over a decade. This downward trend is influenced by a variety of factors, including skyrocketing property prices, a surge in competition, and a tightening housing market, making the practice increasingly challenging and less profitable.
An in-depth analysis by real estate data provider ATTOM reveals in its 2023 U.S. Home Flipping report, that the number of single-family homes and condos flipped in the United States sharply fell to 308,922 from 436,807 in 2022, amounting to a steep 29.3% plummet – the most significant annual decline witnessed since 2008.
The proportion of flipped properties in relation to the total home sales also saw a decline, falling from 8.6% of all sales in 2022 to just 89.1% in the subsequent year. This shift underscores the growing challenges that investors face in the current real estate market.
“In 2023, the landscape for home flipping across the U.S. became increasingly challenging,” observes ATTOM CEO Rob Barber. Despite the fluctuations in the market over recent years, investors have found it difficult to capitalize on potential opportunities, missing out on significant gains.
The data reveals a noteworthy contraction in profitability for flipped properties. In 2023, the gross profits from typical home flips nationwide dwindled to $66,000, down from $70,100 in 2022. This translates to a 27.5% return on investment (ROI) compared to the initial purchase price. It’s important to note that this figure represents the gross ROI, prior to accounting for additional expenses such as mortgage interest, property taxes, renovation costs, and other financial obligations. This ROI is the lowest it has been since 2007, evidencing a gradual decline from 28.1% in 2022 and 35.7% the year before.
The analysis of metropolitan statistical areas (MSAs) indicated that home flips as a portion of all house sales declined in 53% of the locations studied. The most notable decreases were observed in the South and the West, with Gainesville, Georgia; Phoenix, Arizona; Prescott, Arizona; Charlotte, North Carolina; and Provo, Utah experiencing significant downturns.
Conversely, certain metro areas like Macon, Georgia; Gulfport, Mississippi; Jackson, Mississippi; Columbus, Georgia; and Dayton, Ohio saw an uptick in home flipping rates. This mixed picture highlights the localized nature of real estate markets and their varying susceptibilities to broader economic conditions.
Barber further reflects on the challenges facing the market, stating, “The sharp decline in the number of home flips likely reflected a combination of a tight supply of homes for sale as well as dwindling returns. Either way, it will take some significant reworking of the financials for home flipping fortunes to turn back around.”
This downturn in the home flipping market suggests a need for investors to recalibrate their strategies, taking into consideration the current market dynamics and future trends. As the margin for profit narrows, success in home flipping will increasingly require greater diligence, expertise, and innovative approaches to navigate the complexities of today’s real estate landscape.
