Apr 23, 2024 - News

Fewer home-flips as profit plummets

Data: ATTOM; Note: A flip is defined as any transaction between an unrelated buyer and seller within 12 months of a previous transaction; Chart: Axios Visuals

The Austin metro area saw one of the biggest dips in house-flipping profit margins last year, according to a recent report from real estate data company ATTOM.

Why it matters: Flipped houses made up roughly 7.4% of the home sales last year in the Austin metro which, like many Sun Belt areas, has been a hotbed for investors looking to profit off high housing demand.

  • The renovated homes can help stabilize neighborhoods but can also help fuel resident displacement.

By the numbers: Four Texas metros — Austin ($18,640 loss), Dallas ($14,817 profit), San Antonio ($12,289 profit) and Houston ($16,932 profit) — saw the weakest home-flip returns in the country among metros with a population of 1 million or more, according to ATTOM.

  • Austin home-flip profit margins were down from a 9% profit in 2022 to a 4.1% loss in 2023.
  • The largest increase in returns on investment for typical home flips came in Cincinnati (59.6% return in 2023), Cleveland (54.7%) and Honolulu (27%).

What they're saying: "With the significant changes that we have seen in the Austin-Round Rock-Georgetown housing market over the last two years — the music paused at a really inopportune time for flippers, especially those that purchased at the peak of the market," Austin Board of Realtors director Austin Stowell tells Axios.

Between the lines: We're past the house-flip peak of 2021 in Austin, but flipping rates are still up 67% from a decade ago, and 43% from five years ago, ATTOM data show.

The big picture: In 2023, house-flipping activity nationwide dropped 29.3%, the biggest annual decline since 2008, ATTOM found.

  • Return on investment, at 27.5%, hasn't been this bad since 2007. The ROI was down from 28.1% in 2022 and 35.7% in 2021.

The bottom line: Our cooling housing market makes it difficult for flippers to make a profit, but Stowell is still bullish on Austin.

  • "When The Feds turned off the faucet of free money, it exposed that a lot of people were making inherently risky investments because of the low cost of short-term capital," Stowell said. "Though I want rates to drop as much as everyone else, it has returned a sense of discipline to the market that years of low interest rates had allowed to fade away from what should be the foundation of sound business investment strategy."
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