Pandemic-era mortgage rates haven’t just lured families looking to buy their dream home, they’ve also lured fix-and-flip investors hoping to cash in on the American dream of homeownership.

But as rising mortgage rates put a damper on the US home buying frenzy, investors’ luck may be waning.

U.S. real estate investors were responsible for 9.6% of all homes sold in the first quarter of 2022, the highest level since at least 2000, financial services firm ATTOM Data Solutions said in its June report.

But as investors’ home sales hit a 22-year high, their profit margins fell to a 13-year low.

“The good news for fix-and-flip investors is that demand remains strong from potential buyers,” said Rick Sharga, executive vice president of market intelligence at ATTOM, in a statement, referring to the process of buying, renovating and selling a home within 12 months for a profit. “The bad news is that rising mortgage interest rates are starting to slow home price appreciation rates, and buyers have become more selective – and less willing to outbid other buyers for the properties they want. .”

ATTOM data shows that out of ten homes sold in the first quarter, at least one was a flip. Despite increased investor activity, the amount of gross profit that fix-and-flip investors made on deals fell to its lowest level since 2009, a time when the real estate market was still reeling of the Great



“Rising mortgage rates had a major impact on affordability and appear to have an immediate effect on both demand and actual home sales,” Sharga said, adding that it had a predictable impact on profit margins of investors.

While historically low mortgage rates have persuaded millions of Americans to buy homes over the past two years, pandemic-era deals are over and buyer demand is waning. As competition dies down, the white-hot housing market that pinball machines helped overheat is now cooling. With house price appreciation slowing and buyers becoming more discerning, real estate swimmers could see even more declines in earnings.

“Gross profits and overall ROI are still relatively healthy for investors who aren’t overpaying for homes and are good at managing repair costs, but if demand weakens further and prices start to drop, returns for investors could definitely be affected,” Sharga told Insider.

Data from ATTOM shows typical gross profit — the median purchase price paid by an investor subtracted from the median resale price to a buyer — was just $67,000 in the first quarter. Although this translates to a return on investment of 25.8% and is up 5.5% from the fourth quarter of 2021, it is 4.3% below the level of $70,000 recorded in during the same period in 2021.

“Investors are ultimately in business to make money, so lower returns have quite a dramatic and significant impact on their business,” Sharga said. “It can lead to changes in their business model – the amount and type of repair work they do on the properties they are going to flip, or whether they hire fewer people to work on those properties or leave the property altogether. ‘company. . “

Changing market dynamics impact how fix-and-flip investors make their money. If mortgage rates continue to rise, they will likely dampen buyer demand further – and that could mean investors will have to change the way they do business.

“Fix-and-flip investors do best in markets characterized by high demand and rising prices, so the opposite of these conditions will make it harder for these investors to achieve the kinds of margins they need to stay in business,” Sharga said.


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