Mortgage rates reverse home flippers’ fortunes

Rising mortgage rates have a new victim: house flippers.

Flippers, who were readily turning profits just months ago, have now been caught by the housing market’s pivot as homebuyers reel from mortgage rates approaching 7 percent, according to Bloomberg.

“It’s a high-risk, high-reward business — and now we’re facing the high risk,” Tammi Merrell, a full-time flipper in the Denver area, told the outlet. “I’m just praying for break even.”

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Home-flipping made up one in 10 transactions at the start of the year, a record, according to data provider Attom, which tracked properties that were bought and then sold within 12 months. That number fell to 8.2 percent in the second quarter.

Demand has also cooled. The profit margin on flips in August reached 25.9 percent, down from 30.9 percent a year prior. But it plummeted in some areas, such as in San Jose, California, where the margin was 6.5 percent after reaching 45 percent in March. Silicon Valley has been an outlier in the pandemic housing market, lacking the extreme price appreciation seen elsewhere.

iBuyers are facing these troubles on a larger scale. For example, 42 percent of the homes Opendoor sold in August went for less than what it paid for them, according to YipitData.

Noah Brocious, president of Capital Fund I, a hard-money lender that does business in Phoenix, Colorado and Texas, said his home-flipping customers are paying back their loans despite struggles. The default rate in his portfolio has doubled to 2.5 percent in the past two months, but remains below pre-pandemic levels.

“Anybody that’s flipping right now needs to be looking closely at pricing of property,” Brocious said. “Price it to sell. Today is not the time to get greedy.”

— Sasha Jones