Home Flipping Profit Trends Gross Profit Gross ROI
LOAN QUALITY. Today’s lending is a far cry from the “fog a mirror, get a loan” days of the mid-2000s. Before the pandemic, delinquencies and foreclosure activity were running below normal levels, and due to Herculean efforts by the government and mortgage industry, millions of unnecessary defaults were avoided during the COVID-19 crisis. As government programs intended to protect homeowners whose incomes were impacted by the coronavirus expire, delinquency levels have returned to below-normal levels; foreclosure activity, although increasing from last year’s historic lows, is still running at about 50% of normal levels. SELLER MOTIVATION. A big part of what led to the 30% drop in home prices nationally during the Great Recession was a race to the bottom. More than 15 million homeowners had adjustable-rate loans (ARMs), many with “teaser” rates that allowed them to buy a home they couldn’t otherwise afford, or even with negative amortization. When those ARMs reset, the borrowers had to sell their homes, many times while they were being foreclosed on. As more of these properties hit the market—along with short sales, bank-owned REO properties, and discounted builder closeouts— property values cratered. Today’s market looks nothing like that, comprised instead of homeowners with massive equity and a 3% fixed-rate loan who don’t have to sell, and have no incentive to sell, a property in a weakening market. OUTLOOK FOR INVESTORS Weakening demand. Fewer homes being sold. Prices softening. Finance costs rising. No housing crash on
$80,000
60.0%
$70,000
50.0%
$60,000
40.0%
$50,000
$40,000
30.0%
$30,000
20.0%
$20,000
10.0%
$10,000
$---
0.0%
U.S. Homes Flipping Trends Single-Family Home and Condos Flipped
Home Flipping Rate (Pct of Total Sales)
140,000
12.0%
120,000
10.0%
100,000
8.0%
80,000
6.0%
60,000
4.0%
40,000
2.0%
20,000
0.0%
0
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