Home Flippers See Homes Turn Into Money Pits As Interest Rates Skyrocket And Housing Market Plummets
Home flippers were raking in the dough just months ago. However, they have now been caught in the pivoting housing market’s pivot as mortgage rates approaching 7%.
Denver area home flipper Tammi Merrell told the Real Deal:
Data provider ATTOM also says home-flipping made up a record 10% of all real estate transactions in January. However, that number has also fell to 8.2% in the second quarter.
Investors appetite for flipping has cooled in the past several months. Investors have also seen their profit margin on flips in August reached 25.9%. This is down from 30.9% a year ago. In places like San Jose, California margins are only 6.5% after reaching 45% in March. Silicon Valley has been an outlier in the pandemic housing market. Thus, the area is lacking the extreme price appreciation seen elsewhere.
iBuyers are facing these troubles on a larger scale. For example, 42% of the homes Opendoor sold in August went for less than what it paid for them.
Hard money lender Capital Fund I President Noah Brocious says his home-flipping customers are paying back their loans despite struggles. The default rate in his portfolio has also doubled to 2.5% in the past two months. However, it remains below pre-pandemic levels