Home turnaround activity is increasing, profit margins are falling | News

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According to the ATTOM Third Quarter Home Turnover Report, 94,766 single family homes and condos were returned in the third quarter. This represents 5.7% of all home sales in the third quarter, compared to 5.1% in the second quarter and 5.2% in the third quarter of 2020.

But the report also shows typical gross profits have remained lower than they were a year ago, and profit margins have fallen to their lowest level since early 2011.

Gross margin on typical flips was $ 68,847 in the third quarter, up 2.7% from the second quarter but down 1.6% year-on-year. Typical gross profit translated into a return on investment of 32.3% over the original purchase price. This is down from 33.2% in the second quarter and 43.8% year-on-year to its lowest level since the first quarter of 2011.

“The home turnaround produced another set of competing trends in the third quarter of this year, as more investors stepped into the action but benefited less,” said Todd Teta, director of products at ATTOM, in a press release. “Clearly, falling fortunes were not enough to push investors back into a typical scenario of 32% earnings before expenses on transactions that typically take five months on average. We’ll see over the next few months if the amount they can make on these quick turnarounds will still be enough to continue to draw them into the home turnaround business or start pushing them elsewhere.

Home returns as a part of all home sales increased from the second to third quarters in 142 of 195 metropolitan areas analyzed by ATTOM (73%). Among those areas, most of the turnarounds were in Ogden, Utah (9.5% of all home sales); Phoenix (9.5%); Salisbury, Maryland (9.3%); Salt Lake City (9.3%) and Laredo, Texas (9.2%).

Aside from Phoenix and Salt Lake City, the highest turnaround rates in the third quarter in 53 metropolitan areas with a population of 1 million or more were in Memphis, Tenn. (9 percent); Oklahoma City (8.8%) and Austin, Texas (8.5%).

The lowest rates of change of domicile in the third quarter were recorded in Honolulu (0.8%); Portland, Oregon (2.5%); Rochester, NY (2.5%); Manchester, NH (2.7%) and Santa Rosa, California (2.7%).

Profit margins fell from the second to third quarters in 92 of 195 metropolitan areas analyzed (47 percent). The largest declines were in Fargo, North Dakota (ROI down 196.5% to 107.2%); Trenton, NJ (down 117.6 percent to 45 percent); Oklahoma City (down 192.1% to 127.6%); Omaha, Neb. (down 143.3 percent to 95.3 percent) and Macon, Georgia (down 79.5 percent to 33.5 percent).

The markets with the greatest return on investment on typical home flips in the third quarter were Buffalo, NY (130.6% ROI); Oklahoma City (127.6%); Florence, North Carolina (125.8%); Pittsburgh (124.6%) and Scranton, Pennsylvania (123.2%).

Outside of Buffalo, Oklahoma City and Pittsburgh, the biggest third quarter returns on investment among metropolitan areas with at least 1 million people were recorded in Baltimore (90.6%) and Philadelphia (88.7%) .

The metropolitan areas with the lowest profit margins on typical home flips in the third quarter were Laredo, Texas (7.5% return); Boise, Idaho (8%); Gulfport, Mississippi (8.4%); Lubbock, Texas (10%) and Portland, Oregon (10.1%).

The highest gross profits on median-priced home flips were in San Jose, Calif. (Typical gross profit of $ 213,000); Honolulu ($ 176,070); Fargo, ND ($ 166,458); Salisbury, Maryland ($ 145,000); and Baltimore ($ 145,000).

The lowest gross profits on typical transactions were in Gulfport, Mississippi (profit of $ 14,579); Laredo, Texas ($ 15,281); Beaumont, Texas ($ 16,850); Lubbock, Texas ($ 17,725) and Huntington, WV-Ashland, Ky. ($ 18,400).

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