Wall Street and Home Flippers Are Selling Their Houses (Even At a Loss)

It’s a hard time to buy a house. But you don’t need us to tell you that. High interest rates, housing supply shortages and an unpredictable market have kept buyers on the sidelines — and that includes investors.

Home flippers have left the market: In the second quarter, investor home purchases fell 45% to 50K — representing 16% of home purchases, down from nearly 20% in 2022Q1. While that remains above pre-pandemic averages of ~14%, investors are struggling to find good opportunities amid the market mania:

• Flipping is still profitable: In June, the average flipper sold for a 61% gain from their initial purchase price — down from a peak of 69% in 2022. And only 3% of flippers sold at a loss, down from 29% last year.
• But it’s difficult finding supply: Fixer-uppers have become harder to find — while investment property mortgages can be 0.5-0.75 percentage points higher than primary mortgage rates, making borrowing even more expensive.

Fix-and-flip investors may not return soon: According to a Redfin Senior Economist, “Mortgage rates are unlikely to decline significantly in the short term, which will keep homebuying demand relatively low and discourage flippers.” They also noted better returns in the bond market as a reason to wait.

Don’t forget to close the door on the way out

Airbnb owners, TikTok’s clan of “passive income” chasers and even cash-flush investment companies are having second thoughts about holding onto their homes, with some cutting their losses. Reventure Consulting CEO Nick Gerli said, “Wall Street Investors are beginning to sell their houses,” — singling out one private equity fund’s 11% loss on a listing, saying, “It’s just the start.”

• According to Redfin, investors lost money on 13.5% of homes sold in March 2023, the highest since 2016, with those in Las Vegas, Phoenix, and Detroit amongst the biggest losers.
• In 2022, home flipping profit margins fell to their lowest since 2008 — but have since recovered slightly this year as single-family home prices rebounded in the spring.

Good for buyers? Less Wall Street competition may be suitable for Main Street, but current market conditions could leave many window shopping on Zillow instead of hitting that checkout button. Nonetheless, Main Street buyers are finding relief in new home sales — which jumped 12.3% to 759K, a massive beat from the 680K expected by analysts.