Rising prices, tight supply squeezing profits for home flippers
Home flipping in Central Pennsylvania remains lucrative, but rising prices and a tight supply of homes for sale are shrinking profits for many investors.
California-based ATTOM Data Solutions said the average gross profit for midstate flippers in the second quarter ranged from $55,000 to $82,500. Flippers typically have less in net profit after paying for renovations and other expenses associated with listing the home.
In three Central Pennsylvania counties, profits were down compared to the second quarter of 2017.
The number of homes flipped in the second quarter — meaning homes that were bought and sold again in the same 12-month period — also has fallen off in most areas of Central Pennsylvania.
In Cumberland County, flips accounted for 32 sales in the second quarter, down from 47 for the same period a year ago. And the average gross profit fell to $55,000 from $70,000, a decline driven largely by higher prices that investors are paying for properties to flip.
Dauphin County saw flips fall to 49 in the second quarter compared with 65 in the second quarter of 2017. The average gross profit was $66,650, down from $70,000.
York County also saw a sizable dip. There were 120 flips in the county in the second quarter, down from 172 for the same period last year. The average gross profit was off slightly, dropping to $69,300 from $70,675 last year.
By comparison, Lancaster and Lebanon counties saw rising profits and a steady number of home flips. There were 99 flips in the second quarter in Lancaster County, down from 103 for the year-ago quarter. Meanwhile, the average gross profit jumped to $82,500 from $60,100 as resale prices soared higher.
In Lebanon County, flips were up to 33 in the second quarter compared with 30 for the same quarter a year ago. The average gross profit also increased to $64,800 from $53,500 a year ago.
Flippers can make good money if they buy cheap properties in higher-growth areas, complete renovations quickly and on budget, and then attract multiple offers, resulting in resale prices that exceed the list price.
But the math is becoming harder to make work.
ATTOM said the national average for gross profit was $65,520 in the second quarter. That was down from the second quarter last year, when the average was $69,000. The $65,520 average is the lowest in two years.
The company cited fewer distressed sales in the overall housing market, which has limited the ability of flippers to find deeply discounted properties to buy, renovate and resell. Central Pennsylvania has experienced that drop in distressed sales; the market has posted six straight years of sales increases.
During the foreclosure crisis at the start of the decade, investors could find plenty of cheap homes to buy, fix and flip. That drove more people into flipping.
Rising interest rates also have reduced the pool of potential cash buyers, according to ATTOM, resulting in more loans for investors looking to flip.