HousingWireHousingWire
As low inventory levels, elevated mortgage rates and rising home prices keep the housing industry stagnant, short-term real estate investors — aka fix-and-flippers — faced market turmoil during the third quarter of 2024.
Fix-and-flip lender Kiavi, in partnership with John Burns Research and Consulting, released its Q3 2024 fix-and-flip market report this week. The report — which included a survey of 700 home flippers — showed a decrease in the sentiment index as 17% of home flippers reported “poor sales relative to seasonal norms” from July through September.
The index score declined from 63 in the second quarter to 62 in the third quarter. An index score above 50 indicates market expansion, while a score below 50 indicates contraction.
Home affordability challenges presented the biggest challenge for home flippers. Higher mortgage rates dissuaded would-be homebuyers from purchasing flipped properties, while growing competition from new and resale inventory made things more difficult for these investors.
Survey respondents cited high holding costs as another key stressor. These costs include mortgage payments, property taxes, insurance and utilities that must be paid while renovations are performed.
The average interest rate for a fix-and-flip loan also rose in Q3 2024 to 10%, according to Kiavi. By comparison, the average rate for a conventional loan is roughly 7%.
Survey respondents also reported a 1% year-over-year decline in flipped home prices during the third quarter, with most flippers selling homes well below their estimated after-repair value (ARV). More than 90% of flippers reported overestimating their final sales price, while 73% of flipped homes in the past 12 months sold for less than $500,000. But the share of flipped homes sold for less than $300,000 increased from Q3 2023.
Despite fewer sales and lower resale prices, fix-and-flippers faced fierce competition for deals in most markets. On a national scale, 46% of investors reported facing more competition for deals than expected. California (58%), along with the Southeast (52%) and Northeast (47%) regions, stood out with above-average levels of competition.
Other regions also stood out as tougher markets for flipped home sales. Investors in Texas (49%) and Florida (38%) reported lower sales prices compared to 2023. Respondents in both states reported higher resale supply, homebuilder competition and insurance premium increases compared to other locations. But acquisitions were also somewhat easier in these markets due to rising inventory.
The Midwest and Northeast regions continued to outperform Texas and Florida. These areas experienced relatively strong sales, with 46% of Midwest flippers and 43% of Northeast flippers reporting good market conditions. The survey attributed these conditions to fewer resale listings and less competition.
Despite the lower sentiment score in Q3 2024, 40% of flippers are optimistic about sales and market growth going in 2025. This positivity mostly stems from the Federal Reserve rate cut in September and the election results in November. One respondent said that “election years always skew the numbers in my experience.”
