According to the ATTOM report, home resales in the U.S. reached a 17-year high, but investment returns fell to the lowest level since 2008.
The Irvine, California-based land, property and real estate data management company released its Year-End 2022 U.S. Home Resales Report on Thursday, showing that the number of single-family homes and condominiums resold in the U.S. was 407,417, up 14% from 357,666 in 2021 and up 58% from 2020, the highest since at least 2005.
The number of homes resold by investors accounted for 8.4% of all home sales last year, up from 5.9% in 2021 and 5.8% in 2020. The total was the highest since at least 2005, the firm said.
Still, gross profit margins from home resales fell the most in two years last year, dropping to their lowest level since 2008.
“Home flippers across the U.S. experienced another tough time last year as their revenues took another hit. For the second year in a row, more investors got into flipping but didn't see an easy way to make a quick profit,” said Rob Barber, CEO of Atom. “In fact, revenues have reached levels that are easily negated by maintenance costs during the renovation and repair process, which typically account for 20% to 33% of the resale price.”
Nationwide, homes resold in 2022 typically generated a gross profit (the difference between the median sales price and the median amount originally paid by investors) of $67,900. This is down 3% from $70,000 in 2021, and compared to the original acquisition price, represents a return on investment (ROI) of just 26.9%.
Barber said 2023 will tell us more about whether investors will find other ways to make money on home flips, “or whether they'll take a step back and wait for things to improve.”
The latest national ROI (before factoring in mortgage interest, property taxes, renovation costs and other costs of ownership) was 32.6% in 2021, down from 41.9% in 2020.
5th drop in 6 years
Investor returns fell for the fifth time in the past six years, as the average price of the homes they resold rose more slowly (up 12%) than the median price they paid to buy the properties (up 17%), according to ATTOM.
While this niche segment of the U.S. housing market continues to grow, declining home resale profits in 2022 continue to weigh negatively on investors as they struggle to figure out how to profit from changing price trends.
The latest decline comes in a year when the nation's decade-long home price growth began to stall, resulting in the slowest annual increase in three years and even turning downward in the second half of 2022, ATTOM said.
This comes as rising mortgage rates, consumer price inflation and other factors have made homes less affordable for would-be homebuyers, reducing demand and lowering the prices investors can get at resale.
In 2017, home flippers' profits began to decline, even as the overall housing market boomed.
“While lower margins are certainly something to watch, it's important to remember that these figures are somewhat retrospective in that they reflect the disposition of properties acquired in 2021 or early 2022 amid COVID-driven bidding wars in many regions,” said Maksim Stabinskiy, co-founder and president of Roc360, a financial services platform that serves residential real estate investors. “However, it is encouraging to see that investors were able to sell a record number of over 400,000 properties in a rising interest rate environment without significantly extending project timelines.”
ATTOM noted that Roc360 announced last week that it had completed its acquisition of the assets of business loan originator Finance of America Commercial, and the company continues to bet on growth in this sector.
By region
In 216 of 218 metropolitan statistical areas (99 percent) analyzed in the report, home resales as a share of total home sales increased from 2021 to 2022.
Of the top 25 metros with the largest increases in home resale rates for the year, 20 were in the South and West. Leading the way were Burlington, Vermont (up 283.7%), Prescott, Arizona (+183.1%), Bremerton, Washington (+182.7%), Jackson, Missouri (+176%) and Honolulu, Hawaii (+172.6%). According to ATTOM, metropolitan areas are eligible for the report if they have a population of 200,000 or more and have at least 100 home resales in 2022.
Outside of Honolulu, the largest increases in resale rates in 2022 among metropolitan areas with populations over 1 million were Sacramento, California (+116.4%), Atlanta (+94.3%), Minneapolis, Minnesota (+72.8%) and Orlando, Florida (+72.2%).
The only metro areas that saw a decline in home resale rates from 2021 to 2022 were New Orleans (-8.2%) and Green Bay, Wisconsin (-2.9%).
Increase in all-cash transactions
Nationwide, the percentage of resale homes purchased with financing fell to 35.2% in 2022, down from 35.9% in 2021 and 41% in 2020.
Meanwhile, 64.8% of homes resold in 2022 were purchased entirely with cash, up from 64.1% in 2021 and 59% in 2020.
Among metropolitan areas with a population of 1 million or more and sufficient data for analysis, the cities with the highest percentage of resale homes purchased by investors with financing in 2022 included Boston (53.7%), San Diego (51%), Seattle (50.8%), Providence, Rhode Island (50.5%) and San Jose, California (50.1%).
Within that same group, the metro areas with the highest percentage of resale homes purchased all with cash were Detroit (84.7%), Atlanta (80.7%), Buffalo, NY (80.6%), Indianapolis, IN (77.4%) and Cleveland (77.1%).
Profits down 3%
Homes resold in 2022 sold for a national median price of $320,000, generating a resale gross profit of $67,900 above the median original purchase price of $252,100 paid by investors. This national gross profit figure was down 3% from 2021's $70,000 (the highest since at least 2005) but up 4.3% from 2020's $67,000.
Among the 56 U.S. metro areas with populations of 1 million or more, the cities expected to see the highest gross profits from property resales in 2022 were San Jose ($242,625), San Francisco ($163,000), Washington, D.C. ($146,728), New York ($141,332) and Seattle ($137,664).
The metropolitan areas with populations of 1 million or more that had the lowest real estate resale gross profits in 2022 were Kansas City, Missouri ($26,963), San Antonio, Texas ($29,000), Houston ($29,901), Indianapolis ($34,532) and Dallas ($36,970).
Last year, the gross profit margin on a typical home flip in the U.S. fell to 26.9%, the lowest ROI since at least 2005. The ROI on a nationally average-priced home flip has fallen 15 percentage points since 2020 and 24 percentage points since 2016.
Profit margins fell last year as the national average resale price for a renovated home rose just 12.3% from $285,000 in 2021 to $320,000 in 2022. That's lower than the 17.3% increase in the price investors were paying when they bought the home (from $215,000 to $252,100).
Of the 218 metro areas analyzed, 168 (77%) saw their ROIO on a typical home resale decrease from 2021 to 2022.
Among metro areas with a population of 1 million or more, the areas with the largest declines in profitability in 2022 were Rochester, NY (ROI falling from 100.4% in 2021 to 55.6% in 2022), Oklahoma City (down from 63.6% to 35.1%), Philadelphia (down from 106.3% to 78%), Richmond, VA (down from 91.4% to 68.6%) and Washington, DC (down from 61% to 42.7%).
In the same group of markets with populations of 1 million or more, the largest increases in investment returns from a typical home flip were in Cleveland (up from 26.8% in 2021 to 41.4% in 2022), New Orleans (up from 54.1% to 64.6%), Cincinnati (up from 38.4% to 47.4%), Honolulu (up from 5.7% to 7.4%) and Orlando (up from 17.6% to 18.7%), according to ATTOM.
Among metro areas with populations of 1 million or more, the highest gross margins in 2022 were Pittsburgh (114.2%), Buffalo (90.7%), Philadelphia (78%), Baltimore (72.9%) and Richmond (68.6%). The lowest were Honolulu (7.4%), Austin (8.2%), Sacramento (9.4%), Phoenix (10.6%) and Houston (11.3%).