Fix-and-flip profits fell in Q3 2024. Are investors leaving the market?
Fix-and-flip investors took a hit in the third quarter of 2024, as flipped properties accounted for a smaller share of U.S. home sales than in the previous quarter. Short-term real estate investors achieved a return on investment (ROI) of 28.7%, compared to 31.2% in the second quarter of 2024, according to a Atom report published this week.
The third quarter of 2024 American Home Flipping Report van Attom assessed the details of the deed of sale. The analytics firm defined single-family home and condominium flips as “any arm’s length transaction that occurred in the quarter in which a prior arm’s length transaction on the same property had occurred within the preceding twelve months.”
The report found that 74,618 single-family homes and apartments were flipped from July through September. That represented 7.2% of all U.S. home sales, a decline of 40 basis points (bps) from the previous quarter. Investor profits fell over the same period and are now roughly half of the market’s mid-50% peak in 2016.
“Home fins just can’t seem to shake off the doldrums. After more than a year of things getting better, they got significantly worse again over the summer,” Rob Barber, CEO of Attom, said in the report. “The figures from one quarter are not enough to make grand statements about a new recession. The next six months should reveal more about that, especially with a continued tight housing market that should work in their favor.
“But as interest rates remain double what they were a few years ago and inflation continues to drive up renovation costs, investors continue to struggle to make the kind of profits that would draw more people into the game.”
Higher renovation costs, mortgage payments, taxes, insurance and utility costs can negatively impact fix-and-flipper profit margins, Attom said. A separate fix-and-flip report was released last month by Kiavi, John Burns Research and advice and online marketplace Sundae had similar conclusions. Respondents from that survey cited the same costs as the top stressors affecting their business activities and decisions.
At the metro level, Attom’s report noted that the share of home sales among all sales fell in the third quarter of 2024 in 62.8% of areas with enough data to analyze.
The five metro areas with the highest share of flips in the third quarter were Warner Robins, Georgia (22.7%); Macon, Georgia (16.8%); Atlanta (13.6%); Columbus, Georgia (12.8%); and Memphis (12.7%). Meanwhile, the smallest stocks were in Seattle (3.5%); Des Moines, Iowa (3.7%); Honolulu (3.8%); Portland, Maine (3.9%); and Madison, Wisconsin (4%).
Fluctuating shares of housing transactions only tell part of the story. Of the 183 metros in the analysis, 57.9% saw profit margins decline from the second to the third quarter.
The most significant declines occurred in Salisbury, Maryland; South Bend, Indiana; Gainesville, FL; Peoria, IL; and Youngstown, Ohio. The report also noted that profit margins for nearly half of all metros surveyed averaged less than 30%. Profit margins were just 50% in a third of these markets in the third quarter of 2024.
Attom also noted that the average sales price for flipped homes was $315,250 in the third quarter of 2024, or $70,250 above the average investor purchase price of $245,000.
