The previous year presented a precarious environment for players in the single-family rental (SFR) sector and those involved in fix-and-flip ventures. Characterized by fluctuating interest rates, which have now settled at around 7% for 30-year fixed rates, alongside steep financing expenses and stabilizing rental rates due to an influx of multifamily rental properties, the scene was challenging.
In spite of the prevailing pessimism surrounding SFR and fix-and-flip endeavors, industry analysts anticipate a more promising trajectory for both sectors in 2024. Moreover, any respite from the housing inventory scarcity triggered by the surge in multifamily units entering the market is anticipated to be brief. In recent testimony before Congress, Mortgage Bankers Association (MBA) chief economist Mike Fratantoni highlighted the severe supply constraints prevailing in the housing market.
The inventory deficit, compounded by soaring financing costs linked to elevated interest rates and associated inflation in construction expenses, resulted in a nearly 30% drop in home flips in 2023, according to insights from real estate data firm Attom.
The fix-and-flip market’s performance, indicative of overall housing supply dynamics, witnessed a total of 308,922 single-family home and condominium flips last year, compared to 436,807 in 2022. Additionally, gross profits for home flippers dwindled to an average of $66,000 nationwide, down from $70,100 in 2022, Attom reported.
Investment returns on these projects in 2023 hovered at levels vulnerable to being eroded by renovation and repair expenses, typically consuming 20 to 33 percent of the resale price, Attom noted.
According to a recent survey by John Burns Research and Consulting, 49% of fix-and-flip investors anticipate acquiring more properties in 2024 compared to last year, despite the hurdles encountered in 2023.
Arvind Mohan, CEO of fix-and-flip lender Kiavi, highlighted a surge in fix-and-flip loans in the lender’s pipeline during the initial six weeks of this year compared to the same period last year, echoing the sentiments revealed in the John Burns survey.
Though 2023 posed challenges, it was a remarkable year for Kiavi, which funded a record $4 billion in fix-and-flip and bridge loans across approximately 13,000 loans to 5,800 individual investors, marking a 7% increase in volume year-over-year, as per a company announcement.
Positive signs are emerging, indicating a potential turnaround since early 2022 when the Federal Reserve initiated rate hikes. Institutional capital is reentering the private-label securitization market, fostering increased liquidity in the primary market.
Furthermore, advancements in technology are now trickling down to smaller investors in the SFR market, streamlining the process of property discovery, financing, and management, a development not to be underestimated, as noted by Carlton.
