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Home flipper profits are slumping at their fastest pace since the 2009 recession and the prognosis isn’t any better for 2023

Hand flipping a house 4x3

Rachel Mendelson/Insider

  • Last quarter saw the fastest drop in home flipping profits since the Great Recession.
  • Flips on more expensive properties pulled overall returns down for the industry.
  • Warm and sunny places like Honolulu saw the lowest returns and cities like Buffalo saw the highest.

It’s the worst time to make money as a home flipper since the Great Recession. 

While people were flipping homes last quarter at the third fastest rate of the past decade, profits from the typical flip plunged by $14,000 — or 18.4% — to $62,000 from the previous period, according to real estate data provider Attom. It was the sector’s fastest quarterly rate of decline since the US was falling into recession in early 2009, and signals trouble for the coming year, Attom said in a report on Thursday.

Though the gross profit was not even at a three-year low, margins crumbled to 25% last quarter, the lowest since 2009 and less than half the 53.1% seen at the top of the market in 2016, the data show.

The sliding fortunes for home flippers may be the fault of the house flipping business model itself: sell as quickly as possible, even if that means not making as much as anticipated, or even taking a loss, Rick Sharga, head of market intelligence at Attom, told Insider.

“If you’re a flipper, time is your enemy,” Sharga said. Though flippers are facing a rapidly deteriorating housing market, “you don’t want to buy a property and then have to wait to sell it because that time costs you money —  financing, taxes, insurance, maintenance,” he said.

What’s more, no one is sure what tomorrow will bring, Sharga continued. The market could keep moving against flippers and force even bigger setbacks, he said.

It was that sentiment that led Houston flipper John Ziomek to sell a project in July for $50,000 less than he anticipated, at a price he said represented no margin, as Insider reported in October. Ziomek was happy to take the profits he made in previous flips over the past decade, and move to the sidelines.

It’s harder to profit on high end properties

Not all flippers are suffering, though.

Anecdotally, it appears that higher-priced properties are dragging the overall numbers lower, according to Sharga. Homes that sell for $750,000 to $1.5 million in some of the most expensive areas of the country are seeing the biggest slump in demand, so flippers of those properties are feeling the pain, he said. 

“The high end market has basically vaporized, there’s nothing there, ” Sharga said, repeating the words of a flipper he knows. “He was, as he put it, ‘writing checks’ to get a couple properties off of his books.” 

Lower-tier home flips are just as robust as they were a year ago, Sharga said. Those flippers have healthy profit margins even if the overall dollar amounts aren’t as high as with luxury homes, he said. 

Some of 2021’s hottest places to move are seeing the biggest dropoff

As is the case with most of the national real estate market — every local market is different. In this case, places that boasted all the qualities of popular pandemic moving spots were among the worst places to flip a home last quarter, the data show.

Home flippers in warm and sunny places like Honolulu and Jackson, Mississippi, didn’t even make a 1% profit or lost money on their renovation projects, according to the data. Meanwhile, flippers in cities with harsh winters like Pittsburgh — where the typical flipper made a 116.9% profit — and Buffalo, New York, had the largest returns. 

Read the original article on Business Insider