It costs more now for a fixer-upper home loan, which adds to carrying costs. And once on the market, it may not sell for the amount budgeted a few months earlier.

NEW YORK – Changes in the U.S. housing market impact flippers across the nation – but especially in some metros, such as Jacksonville, Phoenix and Las Vegas.

House flippers who rely on mortgage loans must repay them, and rising interest rates make carrying costs even greater. A while a few flippers will keep buying, finding a “truly undervalued homes is a guessing game of how far the market will drop,” says Steven Swidler, an economics professor at Lafayette College in Pennsylvania. “We hate to take losses, and we don’t necessarily adjust expectations to what they should be.”

Home-flipping activity reached a record high at the start of the year, representing 1 in 10 transactions, according to ATTOM, falling to 8.2% in the second quarter. Flippers made up about 14% of transactions in Sun Belt markets such as Phoenix, Jacksonville and Atlanta in the second quarter, but those shares decreased in July and August, ATTOM says.

Noah Brocious, president of Capital Fund 1, says flippers with nicely renovated turn-key properties will stand out in this market. However, it will be challenging for those who overpaid.

“Lots of them in hindsight were making bad buys,” Brocious says. “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.”

The typical profit margin in August dropped to 25.9%, down from 30.9% a year earlier.

Source: Bloomberg (10/11/22) Gopal, Prashant

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