A new survey from Kiavi revealed a slight retreat in market sentiment among home flippers during the third quarter relative to one quarter prior, although flippers remain rosy on their sales over the next six months.
The Pittsburgh-based lender’s Fix-and-Flip Market Index backtracked from a reading of 63 in Q2 to 62 in Q3, though it remains up slightly from 61 in Q3 2023. An index reading higher than 50 indicates that home flippers perceive market expansion, while values below 50 mean that flippers believe the market is contracting.
The overall market index is derived from three subindices, measuring current sales, expected sales, and competition for deals. Of those three subindices, the current flipped home index was markedly weakest, at a reading of 59; a reading of 50 in that subindex suggests that flipped home sales are average compared to seasonal norms, with higher readings indicating that sales are good compared to historical averages. The current sales index has now dropped for two straight quarters after a recent peak of 64 in the first quarter.
Thirty-four percent of home flippers reported good sales in the third quarter compared to the seasonal norm, down from 35% in the same quarter last year. Conversely, 17% reported poor sales compared to norms, the highest share in four quarters. Several flippers reported market strength for well-done flips, although many pointed to elevated mortgage rates, high holding costs and more competition due to inventory increases as primary drivers of falling sales.
Home flippers in the Southwest, Florida and Texas fared the worst, with more than 20% of flippers in those areas noting poor sales. Those regions are among the parts of the country that have seen the largest bumps in inventory, both via growing resale supply and an influx of newly built stock. In Florida’s case most notably, flippers are also grappling with ballooning costs, such as insurance.
Home flippers also reported a drop in pricing power compared to last year, with the share of flippers selling mostly below their initially estimated after-repair value growing to 17%. That’s the highest level since the beginning of 2023. Of those flippers, 92% indicated that they overestimated their final sales price.
Acquisitions, meanwhile, remain tough: 46% of flippers reported more competition for deals than seasonally expected, and the average interest rate on a fix-and-flip loan during the third quarter was 10%.
Still, home flippers appear to be encouraged about the next six months despite trying market conditions now. The subindex gauging expected flipped home sales activity in the next six months is at a reading of 64, up from 63 quarter over quarter and 57 year over year. Kiavi pointed to the beginning of the Federal Reserve’s rate-lowering cycle and the end of the election as sources of optimism.
