You may think that house flipping has nothing to do with you — except maybe a few more shows to weed through on HGTV — but the prevalence of flipping can actually be an indication of how the real estate market is faring overall.
Experts at The Wall Street Journal say that several large banks are working with businesses that specialize in lending funds to home flippers, making financing these projects easier and faster. According to real estate information trackers RealtyTrac, the second quarter of 2016 saw a six-year high in the number of homes flipped, and an all-time record amount of profit of about 49.5 percent. So why does this matter to the average homebuyer?
PricingIt’s easier to flip a less expensive home. The flipper pays less for the home itself, which holds down the overall costs. Even though most flipped homes need a huge amount of work, and not just cosmetic changes, if you can start with a lower purchase price you’re already ahead of the game. More house flipping indicates mortgage interest rates are very low or may have dropped.
InventoryWhen housing inventory is high, homes can sit on the market for long periods of time. To a house flipper, this can be a death knell: the longer the home sits unsold, the longer the investor must carry the mortgage, insurance, taxes, and maintenance costs of each house they’ve flipped, while paying for their own residence as well. This is a real discouragement to would-be flippers. As inventories decrease and competition for homes increases, the lure of flipping becomes more attractive. An increase in flipping houses indicates desirable homes may become scarcer, and competition more robust.
LocationAs the flippers move in to the more desirable neighborhoods, scooping up deals and reselling for much higher prices, the average homebuyer — like you — may need to widen your search farther into suburban or even rural areas to find a home you like, which can mean you’re compromising on your location. When flipping is on trend, more cash buyers pour into the desirable areas to snap up homes ready for renovation.
How This Affects YouFor the average homebuyer, this could mean you’re competing against cash buyers all the time — and they generally have the edge when it comes to warring bids on a home. It’s less likely that you can find an older house that’s been well maintained and is in generally good condition, which is usually much more affordable than a brand-new house. Available homes in desirable areas will be more run-down, requiring more extensive repairs and renovations rather than just cosmetic fixes and updates.
The TakeawayIn sum, the resurgence of home flipping means housing prices are going up and inventories are going down, making a housing purchase much more expensive to people just looking to move to a new home. Add that to the fact that mortgage interest rates are rising, and homebuyers like you could be priced right out of the market very soon. Don’t miss an opportunity to make your move into a new home: Call me today to discuss your options while you still have affordable, desirable choices available!
Article courtesy of Nicholas Dolata, Peoples Home Equity