Recent data from ATTOM shows that the current housing market is hindering house flipping in a number of ways.
First, fewer houses are turned over. The latest figures, which reflect flipping activity in the first quarter of 2021, show that total flipping volume is at its lowest level since 2000. Currently, only one in 37 real estate transactions is a flip, which is almost 5% from the fourth quarter of 2020 and below 7.5% from the same period last year.
Since flipping houses is so dependent on the macroeconomic climate, it makes sense that activity should decrease. With rising inflation fears, uncertain interest rates, and impending hikes in foreclosures, it’s hard to say what the real estate market might look like in a few months.
But performance also suffers for the fins that continue to operate.
Gross profit declined to $ 63,500 from $ 71,000 in the fourth quarter of 2020 – a decrease of nearly 11%. Profit margins also fell to 37.8% from 41.8% in the previous quarter.
Why are the margins falling?
The margin decline is likely due to three factors:
- The almost universal rise in property prices in all regions and property types makes it more difficult for pinball machines to buy property cheaply.
- With extremely low inventory, there is more competition for “fixer tops” from regular homebuyers. It seems that more traditional home buyers are willing to take the risk and labor of redeveloping a property if it means they can actually get something under contract.
- The prices for material and labor are rising, which will depress margins.
However, each completed flip will be listed in a very favorable environment and is likely to fetch a premium price.
With inventories starting to rise again and timber prices down more than 40% from their May high, it will be interesting to see if flipping activity and earnings recover in the second quarter.
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