Phoenix # 3 in home turnaround market, but profit margins are falling

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ATTOM, curator of the nation’s premier property database, today released its second quarter 2021 U.S. home reversal report, showing that 79,733 single-family homes and condominiums in the U.S. were reversed in the second trimester. These deals accounted for 4.9% of all home sales in the second quarter of 2021, or one in 20 deals – the first increase in over a year. Phoenix ranks 3rd in the market for largest home turnaround with 8.1% of homes sold being a turnaround.

The second quarter house reversal rate was up from 3.5%, or one in 29 home sales nationwide, in the first quarter of 2021. But it was still down from 6.8 %, or one in 15 sale, in the second quarter of last year and has remained below levels seen for most of the past decade.


READ ALSO: Are Short-Term Rental Investors Ruining the Arizona Housing Market?


The report further shows that as the turnaround rate increased, profit margins fell to their lowest level in 10 years. Nationwide typical home flip gross margin (the difference between the median selling price and the median paid by investors) increased in the second quarter of 2021 to $ 67,000. That figure was up 2.4% from $ 65,400 in the first quarter of 2021 and up 3.1% from $ 65,000 in the second quarter of last year.

MORE INFORMATION: U.S. House Turnaround Profit Trend Chart for Q2 2021

But the most important measure of profit margins has fallen, with typical gross profit of $ 67,000 in the second quarter of 2021 translating into a return on investment of just 33.5% over the original purchase price. The national gross return on investment fell from 37.2% in the first quarter of 2021, and from 40.6% a year earlier, to its lowest level since the first quarter of 2011, when the housing market had not yet started to recover from a fall in prices. caused by the Great Recession of the late 2000s.

The 7.1 percentage point drop in typical profit margins from the second quarter of last year to the same time this year, marked the largest annual decline since mid-2014. Profit margins declined in the second quarter, as prices for converted homes rose more slowly than they did when investors initially bought their properties.

Specifically, the median home price swung in the second quarter of 2021 to an all-time high of $ 267,000. This was up 10.6% from $ 241,400 in the first quarter of 2021 and up 18.7% from $ 225,000 a year earlier. The annual increase marked the largest increase in returned property prices since 2005, and the quarterly gain exceeded any improvement since at least 2000.

But those price hikes still haven’t outpaced the increases investors were absorbing – 13.6% per quarter and 25% per year – when they bought the homes they sold in the second quarter of this year. . This discrepancy – with prices increasing more at purchase than at resale – resulted in lower profit margins.

The surge in prices on both sides of the reverse deals came amid an ongoing housing market boom that continued into the second quarter of 2021 despite widespread financial damage to the US economy as a whole from the pandemic. coronavirus that struck in early 2020. Home prices continued to climb amid a glut of buyers looking for an already tight supply of homes choked further by the pandemic. These buyers have been drawn into the market in large part by 30-year mortgage rates which have fallen below 3% and the desire of many households to escape virus-prone areas and opt for a space for themselves. adapt to work from home lifestyles.

MORE INFORMATION: Second Quarter 2021 Fix-and-Flip Financing Trend Chart

“The home turnaround rebounded in the second quarter. But the profits certainly didn’t, as the typical home turnaround in the country generated the smallest ROI in a decade, ”said Todd Teta, director of products at ATTOM. “However, it’s not as if home flipping has become a losing proposition. A 33 percent profit on a short-term investment has remained pretty decent, even after the cost of renovating and holding. As the second quarter of this year, investors may need to reframe the way they view these deals. ”

House rollover rates on the rise in nearly 80 percent of local markets

Home returns as a part of all home sales increased from the first quarter of 2021 to the second quarter of 2021 in 144 of the 182 metropolitan statistical areas analyzed in the report (79%). While the national rate has remained lower than it was for most of the past decade, it has typically increased by as much as 3 percentage points in the United States (metropolitan areas were included if they had a population of 200,000 or more and at least 50 homecoming in the second quarter of 2021.)

MORE INFORMATION: U.S. House Turning Trend Chart for Q2 2021

Among these metropolitan areas, the largest turnaround rates in the second quarter of 2021 were in Savannah, Georgia (turnovers accounted for 9.5% of all home sales); Fort Wayne, IN (9.3%); Canton, Ohio (9%); Ogden, UT (8.9%) and Indianapolis, IN (8.9%).

Aside from Indianapolis, the highest turnaround rates during the second quarter of 2021 in 53 metropolitan areas with a population of 1 million or more, were in Memphis, TN (8.7%); Phoenix, AZ (8.1%); Nashville, TN (7.7%) and Tucson, AZ (7.6%).

The lowest second-quarter return home rates were in San Jose, Calif. (1.8%); Rochester, NY (1.9 percent); Albany, NY (2.1%); Bakersfield, California (2.1%) and Wilmington, North Carolina (2.2%).

Typical home returns drop in nearly two-thirds of markets

The median resale price of $ 267,000 for reverse homes nationwide in the second quarter of 2021 generated reversing gross profit of $ 67,000 above the median investor purchase price of $ 200,000. This resulted in a profit margin or return on investment of 33.5%.

Profit margins fell from the first quarter of 2021 to the second quarter of 2021 in 112 of the 182 metropolitan areas with enough data to analyze (62%).

The metropolitan areas with the biggest returns on investment in the second quarter on typical home flips were Oklahoma City, OK (196.4% ROI); Fargo, ND (185.7 percent); Pittsburgh, Pennsylvania (154.2%); Omaha, NE (135%) and York, PA (115.1%).

Apart from Oklahoma City and Pittsburgh, the largest second quarter returns on investment among metropolitan areas of at least 1 million people were in Philadelphia, PA (100%); Buffalo, NY (93.3 percent) and Baltimore, MD (90.5 percent).

The metropolitan areas with the lowest profit margins on typical home flips in the second quarter of 2021 were Gulfport, MS (7.8% loss); Corpus Christi, TX (0.7% yield); College Station, TX (1.2 percent yield); Longview, TX (7.1 percent yield) and Daphne-Fairhope, AL (8.5 percent yield).

Gross profits are still highest in the West, Northeast and South; lowest in the Midwest and South

The highest gross profits on mid-priced home flips in the second quarter of 2021, measured in dollars, were again concentrated in the West, Northeast and South. Of the metropolitan areas with enough data to analyze, 22 of the top 25 were in these regions, led by San Jose, Calif. (Typical gross profit of $ 242,500); Fargo, ND ($ 200,336); San Francisco, California ($ 182,000); Salisbury, MD ($ 159,500) and Barnstable, MA ($ 155,500).

The 25 smallest gross profits on typical transactions were spread across the southern and Midwestern metropolitan areas, with the lowest in Gulfport, MS (loss of $ 12,938); Corpus Christi, TX (profit of $ 1,800); College Station, TX (profit of $ 2,779); Longview, TX (profit of $ 14,291) and Amarillo, TX (profit of $ 16,514).

Home flips bought with virtually unchanged cash

Nationally, the portion of homes remodeled in Q2 2021 that had been purchased for cash by investors edged down to 59.2%, from 59.7% in Q1 2021, although up from at 57.6% in Q2 2020. Meanwhile, 40.8% of homes knocked down in Q2 2021 were purchased with financing. This was up slightly from 40.3% in the previous quarter, but still down from 42.4% a year earlier.

Among the metropolitan statistical areas with a population of 1 million or more and sufficient data for analysis, those with the highest percentage of flips in Q2 2021 that were bought in cash by investors were in Buffalo, NY (83.6%); Pittsburgh, Pennsylvania (81.3%); Detroit, MI (80.5%); Cincinnati, OH (80.3%) and Cleveland, OH (80.3%)

Average time to return nationwide drops to lowest level since 2010

Amateur swimmers who sold properties in the second quarter of 2021 took an average of 147 days to close deals, the lowest level since the third quarter of 2010. The latest number was down from an average of 156 in first quarter of 2021 and 183. to the second quarter of 2020.

MORE INFORMATION: Historical average days from the second quarter of 2021 to the flip chart

FHA buyers buy smallest portion of homes returned since 2007

Of the 79,733 US homes converted in the second quarter of 2021, only 7.8% were sold to buyers using loans guaranteed by the Federal Housing Administration (FHA), down from 9.5% in the previous quarter and 14.7% in the second quarter of 2020. The latter figure marked the lowest amount since the fourth quarter of 2007.

Among the 182 metropolitan areas with at least 200,000 residents and at least 50 homes returned in the second quarter of 2021, those with the highest percentage of returned properties sold to FHA buyers – typically first-time home buyers – were Yuma, AZ (24.7 percent); McAllen, Texas (20.7%); Albany, New York (20%); Salem, OR (20%) and Merced, Calif. (19.7%).

Only 58 counties have a return home rate of at least 10 percent

Home flips accounted for over 10 percent of all home sales in just 58 of the 1,071 counties in the United States with at least 10 home flips in the second quarter of 2021. They were led by Truesdale County, TN (in outside Nashville) (22 percent); Lewis County (Hohenwald), Tennessee (20%); Jefferson County, GA (excluding Augusta) (18.2%); Chester County, TN (outside of Jackson) (15.5%) and Morgan County, TN (outside of Knoxville) (15.4%).


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