High interest rates make homebuyers reluctant
Lenders are advising home flippers to look closely at pricing a property when selling as a new report from the National Association of Realtors revealed a drop in existing home sales in the US in August 2023.
“Anybody that’s flipping right now needs to be looking closely at pricing of property: price it to sell. Today is not the time to get greedy,” Noah Brocious, president of lender Capital Fund 1, told Bloomberg News.
Elevated mortgage rates have put pressure on the housing market, leaving more homeowners and homebuyers reluctant to make the jump. Interest rates currently sit between 5.25% and 5.50% after the US central bank announced a succession of hikes from the start of 2022.
Existing home sales decreased slightly by 0.7% in August to a seasonally adjusted annual rate of 4.04 million units. Sales fell in the South and West, while they increased in the Midwest. However, sales were unchanged in the Northeast.
Increasing profits with rising house prices
In the second quarter, investor profits and profit margins increased for house flips, with investment returns growing at their fastest pace since 2020. The gross profit on a typical house flip increased to $73,700, up 10% year over year.
The typical profit margin increased in the second quarter by 5% compared to the first quarter. Raw profits on typical house flips spiked by 18% quarterly. The typical gross flipping profit equates to a 27.5% return on investment compared to the original acquisition price in Q2 of 2023, according to ATTOM’s news release.
The typical resale price on home flips increased by 2.1% to $308,500 in the second quarter. This contrasts with a 1.6% decrease in the median prices that recent home flippers were commonly seeing when they buying their properties.
A Moneywise report advised home-flipping investors to look out for trends in the housing market at the end of the month.
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