Despite all the attention, home flips have made up a relatively small portion of the real estate market in recent years, with talk of low inventory and high prices dominating. However, home flips have been trending consistently upward over the past two quarters, signaling growing interest in the market, according to the Atom U.S. Home Resales Report for Q1 2024.
This past Q1, 67,817 single-family homes and condominiums were resold in the U.S., making up 8.7% of home sales. This is up from Q4 2023, when resales made up just 7.7% of sales. However, Q4 2023 home resales did show an increase quarter-over-quarter, marking two consecutive quarters of increases. Q1 2024 saw a decrease from Q1 2023, when home resales made up 9.8% of the market, but the trend appears to be moving in the right direction for investors.
As home flipping sales have increased, so have gross profits. According to the report, home flippers nationwide earned an average gross profit of 30.2 percent before selling expenses in the first quarter. This margin marks the third time in four quarters that it has increased, a particularly notable trend after six years of nearly uninterrupted declines.
These margins are up both quarter-over-quarter and year-over-year, though still well below the peaks recorded in 2016. Gross margins in Q4 2023 were 27.7%, while in Q1 2023 margins were just 25.3%, the lowest in nearly a decade. However, with low inventories and rising prices, it is unlikely that gross margins will recover to the 56.3% recorded in 2016 anytime soon.
A typical home flip across the U.S. had a gross profit of $72,375 this quarter, up from $65,000 in Q4 and about $10,000 up from its low point in 2023. Fluctuations in home sale prices have also worked in favor of home flippers recently, with the national typical resale price for a flipped home rising to $312,375, up 4.1% from Q4 2023. This increase outpaced the 2.1% increase in the median sale price, benefiting investors. These kinds of gaps have appeared year after year, as shown by improved quarterly and annual returns.
While national data is useful for observing trends, local data remains central to the real estate industry: 134 of the 173 metro areas analyzed in the report (77.5% of all markets) saw an increase in resales as a percentage of total sales, while some areas saw declines, though most of them by less than 2 percentage points.
In some locations, home resales accounted for a much higher percentage of total sales than the national average of 8.7%. The top five cities with the highest resale rates in Q1 were Warner Robins, GA (where resales accounted for 18.7% of all home sales), Macon, GA (17.1%), Fayetteville, NC (15.8%), Atlanta (14.7%) and Memphis, TN (14.6%). In addition to Atlanta and Memphis, cities with populations over 1 million with above-average resale rates were Columbus, OH (12.8%), Birmingham, AL (12.7%) and Kansas City, MO (12.1%).
But several metro areas had resale rates well below the national average. The cities with the lowest home resale rates in the past first quarter were Honolulu (3.7%), Oxnard, California (west of Los Angeles, 5.3%), Naples, Florida (5.4%), Des Moines, Iowa (5.5%), and Seattle (5.5%).
However, the areas with the highest percentage of total sales from home flipping did not see the greatest gains. The largest gains were seen in the Northeast, particularly in the lower-priced areas of Pennsylvania. The top five were Buffalo, NY (127.8% gain), Reading, PA (124.9%), Pittsburgh (120.6%), Scranton, PA (115.7%), and Harrisburg, PA (113.6%). Meanwhile, investors in Texas and Hawaii generally saw disappointing gains. Among metropolitan areas with populations of over one million, the lowest gains from home flipping were in Austin, TX (0.3%), Honolulu (1.7%), San Antonio, TX (2%), Dallas (5.3%), and Houston (8.4%). The recent slowdown in the housing market has left investors in a state of uncertainty. However, a clear pattern has emerged from the data over the past year: home flipping trends are trending upwards across the board. Smart investors will want to dig deeper into local data to determine which markets offer the best chance of maximizing their investment returns, especially as interest in home flipping continues to grow.
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