Home Flipping Plummets Across the U.S. in 2023 as Profits Decline

Author: SANCO Development

Published: 2:00 PM PDT September 1 , 2024

Updated: 1:46 PM PDT August 30, 2024

The once-thriving business of home flipping in the U.S. has hit a significant downturn in 2023, marking the sharpest decline in flipping activity in over 15 years. According to ATTOM’s year-end 2023 U.S. Home Flipping Report, the number of single-family homes and condos flipped by investors dropped to 308,922—a staggering 29.3 percent decrease from the previous year. This marks the largest annual drop since the housing market crash in 2008, reflecting a challenging environment for real estate investors.

Declining Activity and Dwindling Returns

The report reveals a dual decline in both the number of flips and the profitability of these investments. In 2023, flips accounted for just 8.1 percent of all home sales, down from 8.6 percent in 2022. As the flipping activity decreased, so did the returns. Gross profits on typical home flips fell to $66,000, down from $70,100 in 2022. This equates to a return on investment (ROI) of only 27.5 percent, the lowest since 2007.

The shrinking profit margins are a continuation of a broader trend that has seen returns decline for six of the past seven years. This trend is largely attributed to the slowing of the nation’s decade-long home price surge, coupled with rising costs that have eroded profitability.

Regional Variations: A Tale of Two Markets

The decline in home flipping has been felt across the country, but the impact has been particularly severe in the South and West. Metro areas such as Phoenix, AZ, and Charlotte, NC, saw some of the steepest drops in flipping rates. For example, in Gainesville, GA, the rate of home flips plummeted from 15.1 percent in 2022 to 9.9 percent in 2023.

Conversely, some markets in the Midwest and Northeast experienced a slight increase in flipping activity. Cities like Macon, GA, and Dayton, OH, saw an uptick in flipping rates, indicating that while the overall market is contracting, there are still pockets of opportunity.

The Financing Landscape: A Shift in Investor Behavior

The way investors finance their flips has also seen notable changes. In 2023, 36.5 percent of flipped homes were purchased with financing, a slight increase from the previous year. Meanwhile, the percentage of cash-only flips dropped to 63.5 percent, reflecting a cautious shift among investors as they navigate a more volatile market. Notably, metro areas like San Diego, CA, and Seattle, WA, saw some of the highest percentages of flips purchased with financing, indicating that even in challenging markets, some investors are still willing to take on debt.

The Road Ahead: Challenges and Adjustments

The future of home flipping looks uncertain as the market continues to evolve. Investors are facing increasing pressure to adapt to changing financial conditions. According to Rob Barber, CEO of ATTOM, the sharp decline in flipping activity in 2023 is likely a result of both a tight supply of homes and diminishing returns. He notes that "it will take some significant reworking of the financials for home flipping fortunes to turn back around."

This reworking may involve investors becoming more selective in their purchases, focusing on markets with higher potential returns, or adjusting their strategies to manage costs more effectively. However, with the average time to flip a home increasing to 169 days, the risks associated with these investments are becoming more pronounced.

Conclusion

The dramatic decline in home flipping activity and profitability in 2023 signals a pivotal moment for the industry. As margins shrink and the market cools, investors must navigate a complex landscape that requires careful planning and strategic adjustments. While some regions continue to offer opportunities, the days of easy profits from quick buy-renovate-and-resell projects appear to be fading. As the market adjusts to these new realities, the future of home flipping will depend on how well investors can adapt to a more challenging environment.