Home flipping volume grew to a high in 2022, while profits dwindled

Profits for home flippers last year shrank to their slimmest margins since 2008, even as volumes and market share both grew to their highest in almost two decades, according to a report from real estate data provider Attom.

A total of 407,417 single-family units were bought and subsequently resold by real estate investors in 2022, representing a 13.9% annual increase from 357,666 one year prior and the greatest volume since at least 2005, when the data first started to be tracked. 

Flipped properties accounted for 8.4% of all home sales transactions last year, also the highest mark since 2005, and up from 5.9% in 2021. 

At the same time, though, median gross profit on homes flipped slipped by 3% to $67,900 from $70,000. The median resale price came in at $320,000, while the typical value of investor purchased properties was $252,100.

Calculated solely as the difference between the median sales prices of properties at resale from the time of the investor's purchase, gross profits came out to a typical return of investment of 26.9%, the smallest since 2008. In 2021, ROI for home flipping sales was 32.6%. Profit margins were down for the fifth time in six years. 

"For the second straight year, more investors were flipping but found no simple path to quick profits," Attom CEO Rob Barber said in a press release. "Indeed, returns are now at the point where they could easily be wiped out by the carrying costs during the renovation and repair process, which usually accounts for 20% to 33% of the resale price."

Diminishing returns for real estate investors aligned with overall home price trends throughout the latter half of 2022, Attom said. Investors found the median price for the homes they sold up by only 12%, compared to the 17% appreciation when they purchased the properties, with many hopeful buyers holding off on purchases at the end of last year due to surging interest rates and scarce inventory. Average housing costs grew 5.8% on an annual basis in December, but from its June peak, dropped 2.7%, according to the S&P CoreLogic Case-Shiller Home Price Index.

Gross profits for home flippers, likewise, dwindled to $50,000 in the fourth quarter for median-priced transactions, the smallest since early 2013. The ROI of 20% for the quarter was also the lowest since 2009, and was down from 24.9% three months prior. 

Last year 80,335 homes were flipped, which came out to an 8.4% quarterly market share, the same as the annual percentage.

"This year will reveal more about whether investors decide to find different ways to profit from home-flipping or take a step back and wait for conditions to get better," Barber said.

Among flipped properties, 64.8% were sold via all-cash transactions in all of 2022, up from 64.1% a year earlier. Units acquired through home financing decreased to 35.2% from 35.9% on an annual basis.

A higher percentage of those financed sales were made to borrowers with loans guaranteed by the Federal Housing Administration compared to 2021, increasing to 8.4% from 8%. But overall, long-term trends still point to a large drop in affordability even among fix-and-flip homes. In 2010, FHA-backed purchases accounted for 27.4% of resale transactions. FHA loans are often used by first-time buyers in search of starter homes.

Between 2021 and 2022, 99% of the 218 markets tracked by Attom saw growth in the rate of home flipping relative to the entire local sales market.

Areas with the largest gain in flips were concentrated in the South and West. Among cities with populations of more than 1 million, Honolulu landed on top with growth of 172.6% followed by Sacramento, California, at 116.4%. Atlanta, Minneapolis and Orlando, Florida, rounded out the top five at 94.3%, 72.8% and 72.2%, respectively.