Home flipping is when someone buys a property and holds it for a short period of time and then sells it later with hopes of making a profit. Typically, a home held for 12 months or less and then sold is considered to be a flip. Oftentimes, these are distressed homes that need some rehabilitation and then are able to be sold for a profit.
During the recent years of price appreciation in the real estate market, home flipping has been a common practice among real estate investors. However, we are starting to see a change in this segment of the market.
U.S. home flipping trends
According to ATTOM Data’s 2021 U.S. Home Flipping Report, the first quarter of 2021 showed a steep decline in the number of home flips. In fact, only 2.7% of the total inventory were home flips. This is the lowest figure since 2000. Of all single-family homes and condos in the U.S., only 32,526 were flipped in the first quarter. At this rate, only one in 37 transactions is a home flip.
A big reason for the decrease in home flipping is certainly due to diminishing profit margins. In Q1 2021, the average profit margin was $63,500. Meanwhile, the average profit margin in Q4 2020 was $71,000. With prices rising rapidly and many homes being sold above asking price, the entry costs for home flipping makes it extremely difficult. Furthermore, a historically low inventory of homes for sale also increases competition.
Based on this report, many believe that a good amount of home flippers may be in a holding pattern. Skyrocketing home prices may likely have caused investors to feel that prices have simply gone up too high. The question on many people’s minds is whether this is an indicator of a broader market downturn on the horizon? Although most economists agree that the fundamentals for the real estate market remain strong, many investors still have their concerns.
As with all real estate, location is a critical component to the overall health of the market. In South Florida and throughout The Sunshine State, we continue to see an increased number of people moving into the area. This increase in population combined with the increased number of companies relocating to the state should greatly benefit the overall market. In particular, we continue to see strength in the luxury market.
Are you ready to buy or sell a home in paradise? We can help. Contact Live South Florida Realty, Inc. today!