Death of Deals Puts Stress on Flippers
Since the beginning of the year, mortgage rates have gone from 3.35 percent to 7.30 percent.
Prices have not declined much yet so the result is a dearth of deals adding to the stress of flippers.
Alex Thomas has an interesting Tweet Thread on flipping homes.
Big takeaways from our survey of fix-and-flippers last week: 1) Rates have massively slowed transactions and prices are falling broadly. 2) Lots of talk about flippers changing strategies, holding-and-renting instead of flipping, or exiting the space entirely.
COMMENTARY 🧵->
— Alex Thomas (@housing_alex) November 3, 2022
Flipping Homes
- Big takeaways from our survey of fix-and-flippers last week: 1) Rates have massively slowed transactions and prices are falling broadly. 2) Lots of talk about flippers changing strategies, holding-and-renting instead of flipping, or exiting the space entirely.
- #Atlanta flipper: “Many highly-leveraged flippers will need to go out of pocket to sell or will default on no-recourse loans. We will not see improvement until the 2nd half of 2024. Many will not make it to that point and there will be some bargains for cash-flush investors.”
- #Baltimore flipper: “Sellers are still not reacting to market shifts. Sellers need to lower prices.”
- #Boston flipper: “It’s tough to say how far prices will drop and it’s tough to buy projects based on future values.”
- #Boulder flipper: “Higher rates are making things difficult, but also reducing competition. Things seem uncertain and the market has cooled considerably because of these rate hikes.”
- #Charleston flipper: “The sales market is definitely heading downward, with some areas seeing price declines on a monthly basis. This trend now needs to be priced-in to new buys.”
- #Dallas flipper: “Buyers have dropped out of the market, so we have paused buying and selling.”
- #FortWayne flipper: “Millennials are our largest buyer segment and are too young to remember anything but 2-3% mortgage rates. Higher rates scare them. Low inventory may help, but I see a major downturn coming with large adjustments in home values.”
- #FortWorth flipper: “Buying investment properties in this market is very difficult right now. Most sellers still want too much money and there is not much available for sale.”
- #Fresno flipper: “Interest rates have pushed prices out of affordable ranges. Flippers need lower prices to ensure profit margins remain decent.”
- #HiltonHead flipper: “Flips with an acceptable ROI on paper have been difficult to find. In the past year, rising prices have made marginal flips work. As prices have stagnated, the market has become too risky. I am waiting for some stability before picking up new projects.”
- #LasVegas flipper: “This market is way overpriced still and wholesale prices are way exaggerated. The cost to rehab has increased and contractors that are credible are difficult to find. Jobs don’t get completed in time or on-budget most of the time.”
- #LasVegas flipper: “Very difficult to find deals in a downward-trending market. Sellers and wholesalers are asking too much. A wise flipper will sit out for a while. The retail buyers are sitting out until interest rates come back down.”
- #LosAngeles flipper: “The market has slowed tremendously. Traffic is way down, we are seeing fewer offers, and every buyer is writing lowball offers.”
- #Memphis flipper: “Up until 3 months ago, I would receive offers from investors paying cash. Now, I seem to almost always receive offers from investors getting package loans and putting 20% down, which of course is nowhere near as desirable as a quick cash closing.”
- #Nashville flipper: “Sales are slowing every month and prices are under pressure. We expect this to continue and maybe get worse.”
- #Orlando flipper: “We are now focusing on buying and holding in high-demand areas.”
- #Phoenix flipper: “Prices are declining and inventory is soaring. We’re looking to buy, rehab, and rent instead of flipping.”
- #Richmond flipper: “It isn’t worth flipping right now unless you buy at a steep discount to offset declining values. Will look to re-enter the market in 2023 after pricing has hopefully stabilized and more inventory is available for purchase at better prices.”
- #RiversideSanBernadino flipper: “We are selling homes at prices about -5% to -10% lower than we would have in the spring of this year.”
- #Sacramento flipper: “It’s time to buy and hold. Sellers in this market are in a need-to-sell situation.”
- #Sacramento flipper: “It’s time to buy and hold. Sellers in this market are in a need-to-sell situation.”
- #SanDiego flipper: “Homeowners are more willing to negotiate now and are discounting sale prices drastically to account for a market that is continuing to decline.”
- #SanFrancisco flipper: “Home prices are dropping. Unless the flip is a slam dunk, we have to be cautious on the purchase.”
- #Tacoma flipper: “We are waiting for things to stabilize and will proceed from there. Interest rates are not helping.”
- #Tampa flipper: “The pressure is to the downside and sold comp data is becoming less useful. Prices are declining up to -1% per month. Lenders and other wholesalers should do more work on analyzing recent data. Data from 6 months ago is dangerous for a house flipper.”
- Many thanks to our partners at Flatiron Realty Capital and @SundaeHQ for their help with this survey.
Housing Is Local Until It Isn’t TM
In every cycle, housing bulls scream “Housing is Local” even as transaction and price declines spread from city to city to nearly everywhere.
Recessions are local too. Nearly everything is local, until it isn’t.
I am sure some places are immune from this, but good luck finding them. This leads to denial and wishing.
Denial and Wishing
what I’m seeing is them listing at wish prices, listing at wish rent prices, relisting at still wish prices, relisting to rent at wish rental prices…….properties sitting.
— Darth Powell (@GRomePowBurner) November 3, 2022
Walking the Market Down
“What I’m seeing is them listing at wish prices, listing at wish rent prices, relisting at still wish prices, relisting to rent at wish rental prices…….properties sitting.“
This is called walking the market down, always wanting the price they could have gotten last month.
Existing Home Sales Decline 8th Consecutive Month, Down 1.5% Says NAR
On October 20, I noted Existing Home Sales Decline 8th Consecutive Month, Down 1.5% Says NAR
Pending Home Sales Slump 31 Percent From Year Ago, 10.2 Percent in September
On October 29, I noted Pending Home Sales Slump 31 Percent From Year Ago, 10.2 Percent in September
Don’t Worry, It’s All Local
All Real Estate is Local on Open Housing https://t.co/9CWKYWsVnD
— Tracey Ryniec (@TraceyRyniec) October 31, 2022
Housing is local, one subdivision at a time until it adds up to a national decline of 27.4 percent in 10 months and sure to get worse in the 11th.
Meanwhile, the Fed is hell bent on killing housing. For discussion, please see my report Powell “It’s premature to think about pausing interest rate hikes.”
This post originated at MishTalk.Com.
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Mish
the term “credit crunch” was coined) is the antecedent and paradigm. “The term
credit crunch had its origins in the unusually tight credit conditions that
prevailed in the U.S. in the late summer of 1966, when reports of borrowers
unable to obtain credit at any price were commonplace. Prior to 1966, the
postwar U.S. experienced 3 periods of tight credit; the spring of 1953; the
fall of 1957; and the last third of 1959. These periods were called “credit
squeezes” or “credit pinches”.
Salomon Brothers in the 1960’s, coined the term “crunch” to describe how the
1966 episode differed from those in the 1950’s. Although Homer and Kaufman did
not formally define a crunch, Homer (1966) offered the following explanation:
connotations. The prehensile male sometimes “squeezes” or “pinches”, with the
most affectionate intentions. No bruises need result, no pain need be
inflicted. A “crunch” is different. It is painful by definition, and it can
even break bones.”
E. Owens and Stacey L. Schreft. Federal Reserve Bank of Richmond, March 1993.
rates go up, flows into savings and time deposits increase.”
Homebuyer affordability dropped in September, as the national median payment applied for by applicants increased 5.5 percent to $1,941 from $1,839 in August. This is according to the Mortgage Bankers Association’s (MBA) Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time – relative to income – using data from MBA’s Weekly Applications Survey (WAS).
“Homebuyer affordability took an enormous hit in September, with the 75-basis-point jump in mortgage rates leading to the typical homebuyer’s monthly payment rising $102 from August,” said Edward Seiler, MBA’s Associate Vice President, Housing Economics, and Executive Director, Research Institute for Housing America. “With mortgage rates continuing to rise, the purchasing power of borrowers is shrinking. The median loan amount in September was $305,550 – much lower than the February peak of $340,000.”