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Higher interest rates and a fast-shrinking labor market are taking their toll on the fix-and-flip housing market. Investors are starting to pull back, as costs rise and the time it takes to sell their renovated homes lengthens.
The fix-and-flip market contracted slightly in the second quarter of this year from the first quarter and even more sharply from the second quarter of last year, according to an index from John Burns Research and Consulting and Kiavi, a lender focused on the real estate investor.
“Sentiment remains muted, as economic uncertainty, elevated mortgage rates and rising resale inventory weigh on demand for flipped homes,” wrote Alex Thomas of John Burns Research and Consulting, the primary author of the report.
The index surveys roughly 400 flippers and measures current sales, expected sales and flipper competition for deals. All of those sub-indices fell last quarter. Days-on-market for flipped homes increased as the supply of both new and existing homes for sale rose.
Just 30% of flippers reported “good” sales in the second quarter of this year compared to the seasonal norm, down from 38% in the same quarter of 2024.
“I think what our customers are really experiencing, it really comes down to housing velocity and turnover timelines,” said Arvind Mohan, CEO of Kiavi. “They are definitely in the velocity business, and so if it takes them an extra month to complete a transaction, that’s capital that’s tied up in that property that can’t necessarily be freed up for the next investment.”
Roughly one third of flippers pointed to reduced labor availability due to immigration enforcement and fear-driven absences from jobsites. Labor and material costs for flips hit a record high, but costs as a percentage of sales price were flat.
“From an ROI perspective, we’re not seeing much change there, right? People are still getting that kind of 30% to 31%,” said Mohan.
“We’re definitely seeing the more professional cohorts take a step back, be more conservative, be more choosy, right?,” Mohan said. “If they were going to buy four out of six opportunities a year ago now, they may be buying like two or three out of six just to make sure that they are prepared. As the market resets, they can reset their purchase price and keep the ROI metrics constant.”
Regionally, flippers in Florida, Northern California and the Southwest rated sales more poorly than flippers elsewhere.
“Flippers in these regions face increasing resale supply, significant competition from homebuilders, and rising costs (particularly insurance),” wrote Thomas in the report.
Flippers are also facing the potential of declining prices, depending on where they’re working. While home prices are still slightly higher nationally than they were a year ago, the gains are shrinking fast, and some markets are solidly negative, especially those that overheated in the first years of the pandemic.
Prices in June were just 1.7% higher than June 2024, according to Cotality, which noted that is well below the rate of inflation. Prices were up just 0.1% month to month, which is the slowest monthly gain since 2008.
As a result, Mohan said lenders like Kiavi are being more careful.
“I’ll say definitely, over the last 12 months, we have gotten tighter in our credit box and a little bit more choosier on what types of customers we want to work with in this environment. Things could remain relatively volatile,” he said.
