Roughly one in 10 homes sold in the U.S. in the first quarter of 2022 was resold by investors in response to strong demand from buyers, but profits on those transactions fell to a 13-year low, according to a new report.
According to a report released by real estate data analytics company Atom, 114,706 single-family homes and condominiums were resold in the first quarter of this year, accounting for 9.6% of all transactions in the period. This is up from 6.9% in the fourth quarter of 2021 and 4.9% in the first quarter of 2021.
To determine the number of homes that were resold, Atom examined sales data for all third-party transactions (transactions in which the buyer and seller are not affiliated) for properties sold in the past 12 months and the first quarter of 2022.
Despite the rise in resale rates, the return on investment on these transactions fell to 25.8 percent, the lowest since the first quarter of 2009 and down from 38.9 percent a year ago.
A lack of inventory is causing declining profit margins for “renovate and flip” investors, said Rick Sharga, executive vice president of market intelligence at Atom, and rising mortgage rates are part of the reason. “People don't want to go from a 3 percent mortgage to a 6 percent mortgage, so they're staying in their current homes,” he said.
Rising costs of goods and raw materials due to supply chain disruptions are also weighing on profits. “Another practical reason is that the number of seizures has dropped significantly due to government intervention,” Shalga said.
According to him, home flippers play an important role in the housing ecosystem by buying and fixing up distressed homes, rather than competing with would-be homebuyers. “Most flippers are professionals who do this for a living, and they can do it better and in a more cost-effective way than a buyer can,” he said.