Real estate investors are increasingly becoming worried about soaring home prices in the United States. The higher home prices have caused the flipping rate to fall, making it difficult for investors to make money flipping amid the home buying panic.
Flipping is a popular strategy intelligent investors use to amass profit. It occurs when an investor buys a home set for renovations and sells it once all the upgrades have been completed. Typically, home price is the primary factor that affects flipping. Therefore, if there’s an increase in home prices, the rate of flipping will decrease.
Home Flipping Profit Margins Drops in the First Quarter
Real estate research firm ATTOM Data Solutions report that only 2.7% of single-family homes and condos were considered a house flip, down from 4.8% during the last quarter of 2020, and 7.5% the previous year. House flip transactions were calculated within twelve months of one another
Apart from house flip transactions significantly dropping, gross profits are also declining. Gross profits declined in the first quarter of 2021 to $63,000, down from $71,000 in the last quarter of 2020. Further reports from ATTOM Data Solutions on the first quarter of 2021 of U.S House Flipping states that flipping rates fell in 70% of 108 local markets, the most significant decrease. The largest home flipping decrease occurred in Memphis, Lakeland, San Francisco, Columbia, and Palm Bay.
The Coronavirus pandemic is primarily the causative factor for the high home prices and lower flipping rate. In addition, House inventory became lower, and mortgage rates also increased. These, alongside the pandemic, are some of the reasons why new home sales fell, and home prices are skyrocketing.
As a result of the fall and high home prices, flippers are doing all they can to speed up transactions. Flippers who sold their homes in the first quarter took approximately 159 days to complete their transactions, the lowest since the third quarter of 2013. According to ATTOM, the first quarter of 2021 marked a significant downturn in the flipping industry.
Houses flipped in the first quarter were sold for a median price of $231,500, down 3.9% compared to the last quarter of 2020. This downturn marked the first quarterly decrease in resale prices since the last quarter of 2018 and the largest since 2011.
“The big drop in activity suggests that investors may be worried that prices will continue to go up. After riding the housing boom along with others for years, they might be having second thoughts if the downturn is more than what it currently looks like”, Chief Product Officer Todd Teta said.
Whether home prices will continue to rise or not is all speculative. The housing market is still recovering from the pandemic. Home investors can only hope that the real estate market will improve.