House flippers burned by the US housing slump are now slashing prices to cut losses — here’s the two main reasons why

'Not a time for greed': House flippers burning on US housing slump are now slashing prices to cut losses - here's the two main reasons why

‘Not a time for greed’: House flippers burning on US housing slump are now slashing prices to cut losses – here’s the two main reasons why

The house flippers that have pounced on the recent declines in home prices are now facing some major hurdles — and potentially big losses.

It’s a story that could not have been predicted: With home flipping hitting record highs as 2022 kicks off, the bubble appears to have burst. Home turnover/traditional home sales are down to 1 in 10 as the overall real estate market hits the brakes.

Home sales fell for the ninth straight month in October, and are down a staggering 28.4% from October 2021, according to the National Association of Realtors. It is now causing many real estate investors to quickly empty their inventory.

“Anyone who fluctuates now needs to look closely at real estate prices: price them to sell. First Capital Fund President Noah Brochus, a hard money lender doing business in Phoenix, Colorado and Texas, told Bloomberg News in October, Today is not the time for greed.

It’s true that elsewhere—in the stock market, for example—low prices and sell-offs reveal golden buying opportunities. But for those eagerly eyeing the housing market, it’s time to think again.

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demand decline

House flippers have to face the facts: The increased demand we saw earlier this year may not return for years, if at all. First, the housing stock reached a 10-year low in January 2022, according to Trading Economics, with just 860,000 single-family and residential units for sale in the United States.

About 115,000 single-family homes and apartments in the United States were “flipped” during the second quarter of 2022, according to real estate data curator ATTOM. This accounted for about 8.2% of all home sales in the quarter, or up to one in every 12 deals. He noted that any economic slowdown is not yet evident in the broader market.

“The total number of flipped properties was the second-highest total we’ve recorded in the past 22 years, and the average sale price of a flipped property — $328,000 — was the highest ever,” said Rick Sharga, executive vice president of Marketplace. INTELLIGENT ATTOM.

Read more: Trade While the Market Stumbles: Here are the best investing apps to pounce on ‘once in a generation’ opportunities (even if you’re a beginner)

“The big question is whether the repair and reversal market will start to lose steam as home sales have fallen dramatically over the past few months, and the cost of financing has actually doubled over the past year.”

Inventory of homes for sale peaked in July at 1.31 million. And while that fell to 1.22 million homes in October, the general uptick continued even as demand continued to decline.

high rates

Now for the second issue facing house flippers, the one that has everyone groaning: higher interest rates. That means more expensive mortgages, which have annoyed flippers with massive increases in their loans.

Since real estate investors usually invest in several homes at once, it is no wonder that many now want to get rid of them. But with potential buyers also stopped by the high prices, it has turned into a Hail Mary theatric.

The federal funds rate increased by 0.5% at the start of 2022, and is now between 3.75% and 4%. However, the price is likely to rally higher before the end of the year as the Federal Reserve hinted at a series of hikes ahead, which could tip the country into recession.

With this in mind, many real estate investors will want to wait before getting greedy about home prices. Today a large amount on the house is balanced with a mortgage with a much higher rate of interest compared to this time last year.

However, there is some hope on the horizon, according to the ATTOM report. After six consecutive losing streaks, margins have increased over the past quarter. Total profit on a typical deal was $73,700, up 10% year-over-year and 10% quarter-over-quarter.

So what’s next? Americans should have more information about future trends when the next housing reports are released at the end of December.

At the same time, keep this in mind: Because home volatility tends to mirror the rest of the market, real estate investors should prepare for more downsides — including stomach-drops.

A better way to buy real estate?

Of course, flipping single-family homes and apartments isn’t the only way to invest in real estate.

Amidst severe inflation and an unstable economy, real estate tycoons are still finding ways to invest millions effectively.

For example, premium commercial real estate has outperformed the S&P 500 over the past 25 years. With the help of new platforms, these types of opportunities are now available to retail investors. Not just the super rich.

With a single investment, investors can own institutional-quality properties that are leased by brands like CVS, Kroger, and Walmart—and collect steady income from grocery stores on a quarterly basis.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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