You flip and you flop.
The wildly successful Home Flipper is now facing heavy losses after the abrupt end of US housing demand just six months ago.
Buyer demand is squeezing as interest rates rise to a 15-year high of 7.5%.
Tammy Merrell, a flipper from Denver, described her plight as “a high-risk, high-return business.”
“We are at high risk right now,” Merrell said. Bloomberg. “I just hope that it will break even.”
Both buyers and sellers have been hit, but household flippers have been hit hardest.
According to the outlet, the goal with most flippers is to sell as quickly as possible.
“Finding a truly undervalued home is a game of guessing how far the market will fall,” says Steven Swidler, an economics professor at Lafayette University in Pennsylvania. The 2008 financial crisis told Bloomberg.
“It’s human stupidity. We don’t like taking losses and we don’t have to adjust our expectations to what they should be,” says Swidler. “Songs like ‘The Gambler’ by Kenny Rogers. Some people just don’t know when to fold.”
At the beginning of 2022, home flipping activity will hit a record high of 1 in 10 transactions, according to Attom, a data provider based in Irvine, California.
Attom tracked home sales over the past 12 months and found sales fell 8.2% in the second half.
Specifically, demand in Sunbelt market areas such as Phoenix, Jacksonville, and Atlanta cooled significantly as affordability declined.
According to Attom data, profit margins analyzed from August for flippers in these regions fell to 25.9% from 30.9% a year earlier.
In Austin, Texas, flippers lost almost 1% of profits, while in San Jose, Calif., where prices have fallen the most, profit margins were just 6.5% after surpassing 45% in March, Bloomberg notes. doing.
“Flippers are fueling price volatility,” said Mark Zandy, chief economist at Moody’s Analytics. They “forced it up when mortgage rates were low, and now they’re pushing prices back when rates are high.”
Phoenix flipper Ben Arredondo has revealed that 27 homes suddenly had to cut prices mid-flip. Arredondo told Bloomberg he could sell most of his property, but expects to lose $1.3 million “if he’s lucky.”