Investor profits are falling, and the number of investors losing money reached the highest point since 2016, according to a new report from Redfin.
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Real estate investors lost money on about 13.5 percent of homes they sold in March amid slower homebuying demand, higher mortgage rates and falling prices, according to a report released Friday.
Nearly 1 in every 7 homes sold last month went for less than the investor paid for it, Redfin said in a new report that found the rate of investors selling at a loss was the highest since 2016.
It’s a sharp contrast to a year before when just 2.8 percent of homes sold by investors lost money, and it is several times higher than the broader housing market, where 4.8 percent of homes sold in March were sold at a loss.
“You might wonder why investors don’t just wait to sell until the housing market bounces back. Many long-term investors who rent their properties out are doing that, but many flippers — especially those who bought recently — can’t afford to,” said Redfin senior economist Sheharyar Bokhari.
“Holding onto homes that aren’t producing income can be expensive because the owner is on the hook for property taxes, along with operating costs and monthly mortgage payments in some cases,” Bokhari said. “Many short-term investors are also opting to sell because they know prices may have more room to fall and want to cut their losses.”
The report tracked 40 of the most populous metro areas in the U.S. and excluded markets where sales data isn’t disclosed. It also included investors of all sizes.
Several of the top markets on the list were darlings among investors who bought upwards of 1 out of every 3 homes sold during the COVID-19 housing market.
Investors lost money on nearly a third of the homes they sold in Phoenix and Las Vegas, two markets that are seeing rent fall fastest after a boom.
In Jacksonville, 20.9 percent of investors sold at a loss. In Sacramento, it was 20.2 percent, and in Charlotte it was 17.4 percent, according to the report.
Each of those markets was identified as pandemic boomtowns for investors before the market slowed and investors began pulling back their activity in recent months.
The downturn has led fewer investors to buy properties, with Redfin reporting that investor activity dropped 46 percent in the final three months of 2022.
Investor profits falling
The typical investor sold a home in March for 46 percent more than their purchase price. That’s down from a peak of 67.9 percent in June 2022, Redfin said.
Those gains don’t account for the amount spent on renovations, which can pull investor losses or profits down even further.
Things are particularly bad for fix-and-flip investors. Nearly 1 in 5 homes sold by flippers in March sold at a loss, the report reads.
In Phoenix, Redfin agent Van Welborn said his client passed up a home that sat on the market for four months. The investor bought it for $450,000 and put $50,000 of work into it, Welborn said.
It ended up selling for $480,000, about 13 percent less than what it initially listed for and represented a $20,000 loss.
“Home flippers aren’t reaping the gains they used to,” Welborn said.
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