The once-sizzling hot market of home flipping saw a significant drop in temperature in the third quarter of 2023. After years of skyrocketing activity, the number of homes flipped in the U.S. fell for the second consecutive quarter, marking a shift in the housing landscape. Of course, given the current macroeconomic challenges including high inflation, high mortgage rates, and high home prices, this is not entirely surprising. We discuss this further below.
A look at the numbers for the cooling home flipping market
- Fewer Flips: According to ATTOM Data Solutions, only 7.2% of all home sales in Q3 were flips, down from 7.9% in Q2 and 7.7% in Q3 2022. This translates to roughly 72,543 homes flipped nationwide, the lowest level since 2021.
- Profit Pockets: While flipping activity cooled, profits actually went up slightly. The median profit on a flipped home rose to $70,000, thanks to a smaller decline in resale prices compared to purchase prices. However, that’s still significantly lower than the peak of $110,000 hit in 2021.
- Faster Turnaround: Homes are spending less time on the market after flips. The average flip took 161 days to sell, down from 178 days in Q2 and the fastest turnaround since late 2021.
What’s behind the cool down?
- Rising Interest Rates: Higher borrowing costs make it more expensive to finance flips, putting a damper on investor enthusiasm.
- Market Slowdown: The overall housing market has cooled in recent months, with slower price growth and more days on the market. This makes it harder for flippers to find profitable deals and exit quickly.
- Inventory Shift: The shortage of houses that plagued the market for years is easing, giving buyers more options and reducing the urgency to compete for flipped homes.
What’s next for home flipping?
The future of flipping remains uncertain. While profitability has improved slightly, the overall drop in activity suggests that the days of easy flips are over. Investors will need to be more cautious, focusing on value-added renovations and shorter holding periods.
For traditional home buyers, the decline in flipping activity could be a mixed bag. On the one hand, it may increase inventory and lead to less competition. On the other hand, it could also mean fewer fixer-uppers on the market, as investors shift their focus to other types of deals.
The home flipping market is going through a period of adjustment. While it’s unlikely to disappear entirely, the days of high-volume, quick-and-easy flips are probably over for the time being. For both flippers and buyers, careful analysis and informed decisions will be key to navigating the changing landscape. As always, working with a local and knowledgeable real estate agent will be critical to your success with any real estate investing.
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