An analysis by Redfin has discovered that around one in seven homes (13.5%) sold by investors in the U.S. in March yielded a loss, meaning the home sold for less than the price the investor bought it for. In February, the rate was 14.5%, the highest since 2016. The change in fortune for real estate investors implies that buying and flipping homes is not profitable anymore. Compared to figures from last year, the rate was almost three times higher. In May 2022, the rate was at a record low of 2.8%. To put things into perspective, only 4.8% of overall homes sold in March yielded a loss. Redfin prepared the report by analyzing home sales data from the 40 most populous metropolitan areas. Even homes that sold for a profit yielded significantly lower gains. On average, an investor sold a typical home for a profit margin of 45.9% in March, lower than the 55.3% profit margin from last year and 67.9% profit margin from June 2022. Redfin acknowledged that investors might have spent a certain amount renovating the property. The report cited rising mortgage rates and decreasing demand as the main reasons for investors losing money. The monthly payment of homeowners has gone up by around $300 from last year. According to Redfin's senior economist, Sheharyar Bokhari, many long-term investors are renting out the properties and are waiting for the housing market to bounce back. However, many flippers who recently bought a property cannot afford to do so, as holding on to homes not producing income would prove expensive. He added that many short-term investors want to sell now to cut their losses as they feel prices may fall further. 20.8% of homes sold by flippers in March amounted to a loss. Across the U.S., the median sale price of homes sold by investors dropped by 4.8% from $486,980 to $465,505. San Francisco saw the most significant decline of 30%, followed by Sacramento (13.6%), San Jose (13.4%), Oakland (13.3%), and Warren (11%).
Investors are less likely to see a loss in affordable areas and a few South Florida markets. 1.7% of homes sold in Virgin Beach yielded a loss, followed by West Palm Beach (2.4%) and Fort Lauderdale (2.5%). In February, Redfin reported that investor purchases declined by 45.6% YoY, a record decline in investor activity. The last time a similar drop was witnessed was in 2008, when investor purchases plunged 45.1%. Investor purchases dropped 27% on a QoQ basis, the largest quarterly decline excluding activity at the beginning of the pandemic. Among the 40 metropolitan areas, the largest YoY decline was seen in Las Vegas (67%), followed by Phoenix (66.7), Nassau County 63%), Atlanta (62.8%), and Charlotte (61.9%). |
