The conditions for fix-and-flip developers are becoming increasingly difficult, which is reducing flipper optimism, according to a new survey by lender Kiavi and John Burns Research & Consulting.

The fix-and-flip market, which involves purchasing a home in need of repairs and then quickly renovating and selling the property for a profit, is facing a series of headwinds, including record-high labor and material costs, a sluggish market and a shortage of skilled labor.

While flippers expect the industry to expand, the Burns Market Index, which offers an overview of the industry, shows that the expectations for that expansion continue to fall. On a 100-point scale, with 50 being average or flat, the current sentiment is 57. The index has shown a steady decrease since reaching 66 in the first quarter of 2024.

The survey found that 33% of flippers nationwide cited reduced labor availability due to immigration enforcement. The problem was most severe in southern California, where half of flippers noted fewer workers were available due to direct immigration enforcement or the threat of enforcement. It was least severe in the Northwest and, surprisingly, the Southwest, where 18% of flippers in both regions stated immigration enforcement had impacting labor availability.

Flippers also report that homes are staying on the market longer quarter over quarter. Nationally, 53% of flippers reported the time a home stayed on the market in the second quarter significantly increased or somewhat increased when compared to the previous quarter. Slightly more than 50% of flippers in seven of nine major U.S. regions report homes staying on the market longer in the second quarter. The two regional exceptions were the Midwest and the Northeast.

The average renovation cost for a flipped home reached $76,000 in the second quarter of this year, up $4,000 from the first quarter, and is now at the highest level in the survey’s history.

Renovation costs were highest in northern California, where prices averaged $136,000 per home. Southern California was second at an average cost of $90,000, followed by the Midwest where the average cost was $86,000, and the Southwest where costs averaged $83,000. The region with the lowest average costs was the Northwest at $39,000.

Renovations account for an average of 16% of a flipped home’s sales price. The highest was in the Midwest, where renovations accounted for 26% of the sales price. The lowest was in the Northwest, where renovations made up a scant 6% of the sales price.