Fix-and-flip real estate investors observed more difficult market conditions during the second quarter compared to the start of the year as elevated mortgage rates suppressed buyer demand and softening resale values undercut projections.

Developed by investor-lender Kiavi in partnership with John Burns Research and Consulting, a real estate advisory firm, the Fix and Flip Market Index (FFMI) fell to 59 in the second quarter from 63 in the first quarter, 62 in the fourth quarter and 57 a year ago. Measured from 0 to 100, an FFMI score exceeding 50 indicates market expansion.

Compared to 17% in the first quarter, roughly 1 in 5 respondents to the companies’ quarterly survey reported selling flipped homes for “mostly below” after-repair value (ARV), which represents the price at which investors expect flipped homes will sell. Flippers typically acquire properties to renovate at 70% or less of projected ARV.

“Pricing power appeared to be firming over the last several quarters,” according to the report, but “reversed course” in the second quarter, “likely the result of higher mortgage rates weighing on demand for flipped homes.”

In fact, 5% more flippers missed their ARV target compared to the share who exceeded it — the fourth time in the past five quarters that more flippers have missed than exceeded their target. Slightly less than two-thirds of respondents sold flipped properties at prices in line with expectations.

Average mortgage rates on typical 30-year home loans rose roughly 0.5% over the second quarter, largely driven by inflationary pressures from the Iran war that started in late February. Mortgage Bankers Association data show 30-year rates ending June around 6.6%, compared to 6.1% before the conflict began.

The market for flipped homes has softened considerably in recent years alongside a broader home sales downturn fueled by purchase affordability challenges, macroeconomic uncertainty and a shortage of single-family homes helping to keep home prices at historically high levels.

Right as the Federal Reserve started to raise interest rates in the second quarter of 2022, only 9% of surveyed flippers described current sales as “poor” relative to seasonal expectations. The share reporting “poor” sales has risen every second quarter since, to 12% in 2023, 14% in 2024, 18% in 2025 and 20% in 2026.

But regional divergence that has pushed home values higher in the Midwest and Northeast while causing prices to decline in many markets across the South and West has produced a divergence in flippers’ fortunes as well, according to second-quarter survey respondents.

Only 7% of flippers in the Midwest, 19% of flippers in the Northeast and around 12% of flippers in California reported selling flips mostly below ARV. That compares to 44% in the Southwest, 33% in the Northwest, 29% in Texas and 26% in the Southeast and Florida.

“Lenders should underwrite these regions to a forward ARV that assumes continued price softness over the hold period, rather than to current comps,” the report advised.

But hold periods — or the time between finishing a renovation and actually selling the completed flip — have also lengthened in recent quarters amid a slow pace of sales.

That means carrying costs like property insurance and maintenance have increasingly eroded gross profits, while simultaneously delaying the time frame by which investors can expect to recoup funds for paying back lenders and contractors or starting new projects.

Nearly 6 in 10 flippers reported a rise in days on market during the second quarter, with 50% of flippers in the Northwest, 25% of flippers in Texas and Florida, and 31% of flippers in the Southwest saying that days on market “significantly increased.” 

Despite the majority of flippers in every region outside Northern California reporting increased days on market, the second quarter also produced the highest share of flippers securing new loans in two years, at 59% compared to 50% in the first quarter and 55% a year ago.