Despite the seeming decline in popularity of house flipping, the gross profit on the typical home flip rose to its highest amount since 2000 of $73,766, up from $69,000 during the second quarter of 2020.
House flipping rates continued a downward trend for the second consecutive quarter to their lowest rate in four years, according to Attom Data Solutions’ third-quarter 2020 U.S. Home Flipping Report.
A total of 57,155 U.S. single-family homes and condos were flipped during the third quarter, which represented one in 20 transactions or 5.1 percent of all home sales. That number was down from 6.7 percent of all home sales during the second quarter and 5.5 percent of all home sales during the third quarter.
Despite the seeming decline in popularity of house flipping, the gross profit on the typical home flip rose to its highest amount since 2000. During the third quarter, the typical gross profit reached $73,766, up from $69,000 during the second quarter and $61,800 during the third quarter of 2019.
The profits seen during Q3 2020 reflected a 44.4 percent return on investment (ROI) compared to the cost of acquiring the home. That figure was up from 42.9 percent during Q2 2020 and 40.3 percent from Q3 2019.
As demand for housing has soared over the course of the pandemic, house flippers have reaped the benefits from median home prices that have continued to inch upwards, boosting those flipping profit margins.
“Home flipping again generated higher profits on less transactions across the United States in the third quarter of 2020 as investors continued to make more money on a declining number of deals,” Todd Teta, chief product officer at Attom Data Solutions, said in a statement. “This all happened in the context of the pandemic, which has created unusual circumstances for the housing market to thrive, and that has included the home flipping business. Too much is uncertain these days to say whether the latest trends will continue. But for now, the prospects continue looking up for home flipping after a period when they were trending the opposite way.”
Across 93.1 percent of markets analyzed, home flipping rates were down between the second and third quarter. The largest quarter-over-quarter decreases were seen in Killeen, Texas (down 44.5 percent); Savannah, Georgia (down 43 percent); York, Pennsylvania (down 42 percent); Greeley, Colorado (down 41.5 percent); and Springfield, Massachusetts (down 39.8 percent).
The median home price for houses flipped during the third quarter reached $240,000, yielding a gross profit of $73,766 above the median purchase price of $166,234.
The ROI on flipped homes increased across two-thirds of markets analyzed, with the largest gains seen in Brownsville, Texas (ROI up 182.9 percent); Austin, Texas (up 176.4 percent); Waco, Texas (up 157.4 percent); Springfield, Missouri (up 145.3 percent); and Savannah, Georgia (up 143.6 percent).
Those soaring profit margins allowed home flippers to sell for at least double their purchase price across 14 different markets during the third quarter.
Overall, the highest raw profits were seen in the West and Northeast, and lowest in the South. Metros that saw the highest profits included San Jose, California (gross profit of $290,000); Ventura, California ($180,000); Bridgeport, Connecticut ($177,500); Los Angeles, California ($161,500); and San Francisco, California ($158,500).
Across all regions, homes purchased with financing versus all-cash remained largely unchanged from quarter to quarter. Houses purchased with financing rose slightly from 42.4 percent during Q2 2020 to 42.6 percent in Q3 2020, while homes purchased with cash made up 57.4 percent of homes flipped during the third quarter, a slight decline from 57.6 percent in the previous quarter.