House flipping is all fun and games when you’re staked out on the couch, taking in Chip Gaines’ latest shenanigans or wondering what Joanna will do with shiplap next (they’re the hosts of HGTV’s “Fixer Upper,” FYI). The flipping market is on the rise for the first time since leveling out in 2014, and it’s making for some great TV. But implications of the house flipping movement for today’s homebuyers are complex. And if you’re an average homebuyer, the steady increase in home flips could undermine your ability to afford your own fixer-upper.
Why are flippers striking now?
RealtyTrac defines a “home flip” as a property bought and resold within one year. The current hot housing market means lower inventory, resulting in homes selling more quickly. This lures flippers onto the scene for obvious reasons: the less time their investment spends on the market, the shorter they must carry the burdens of mortgage, taxes, maintenance and insurance on the property. Read: more profit, and more competition for desirable homes.
The problem you didn’t know was a problem
Real estate agents and homebuyers alike are aware that there’s a shortage of turn-key homes on the market, perpetuating the seller’s market across the U.S. Enter house flippers – snatching up run-down homes in desirable neighborhoods, and turning a profit on their investment. Why is this your problem? Because in a tight housing market with multiple offers on the table, entry-level homebuyers can’t compete against all-cash offers brought forth by flippers. Flip table.
Properties under foreclosure or bank-owned are the most sought-after by flippers, but as the market becomes more crowded with buyers, these property types are fewer and farther between. This causes flippers to enter into the mainstream market, purchasing homes closer to market value alongside their average homebuyer counterparts. Not great news if you’re the average homebuyer.
Problem, meet compromise
When flippers start clamoring for homes in a hot market, it may actually be an indicator that mortgage interest rates have ticked downward. That’s good news for homebuyers, but with less available homes in desirable areas, the average homebuyer may need to expand their search radius to find a home they like.
The homes in the neighborhood you want could require extensive (expensive) renovations. Whereas homes in generally good condition at an accessible price point, but in need of a cosmetic fix and updates, are the ones getting the mark-up from flippers.
Don’t miss your opportunity
It’s not all doom and gloom – just because there’s a surge of house flippers to compete with, that doesn’t mean you have to put your house hunting plans on hold. But the longer you wait to act, the more likely you could be priced out of the market. Your move.