As a house flipper with over 20 years of experience, I’ve often heard misconceptions about how flipping affects the real estate market. Some believe flippers drive up housing prices or take homes away from owner-occupants. In reality, the situation is much more nuanced, and flippers actually play a vital role in stabilizing the market.

Video: House Flipping’s Impact on the Real Estate Market

Do House Flippers Take Homes Away from Owner Occupants?

Many assume flippers are outbidding potential homeowners, but that’s rarely the case. In fact, owner-occupants typically have a competitive edge. Here’s why:

• Flippers Have More Costs: When I buy a home, I have to factor in repair costs, labor, materials (which have skyrocketed), holding costs (utilities, insurance, taxes), and financing. Homeowners, on the other hand, don’t incur most of these expenses.
• Owner-Occupants Can Pay More: Since they’re living in the house, owner-occupants can often afford to pay $20,000 to $30,000 more than a flipper, still getting a great deal and building equity.
• Livability Standards: Most owner-occupants use loans like FHA, VA, or conventional loans, which require the home to be in livable condition. Houses that flippers buy—like those with holes in walls or broken plumbing—often don’t meet those standards, meaning we’re not competing for the same properties.

Why Are We Buying the Homes No One Wants?

The homes we buy usually aren’t competing with those available to owner-occupants. They’re homes that need serious work, often too much for the average buyer to handle. Whether it’s through a foreclosure auction or from sellers who want to avoid showings and inspections, many of these homes would otherwise sit vacant.

The reality is, most buyers don’t want the hassle of dealing with broken heating systems, electrical issues, or mold. That’s where we come in, using our expertise to restore the property.

Fix and Flip 70 Percent Rule Calculator

Are House Flippers Raising Housing Prices?

Another common myth is that flippers are raising housing prices. However, this idea doesn’t hold up to scrutiny:

• Appraisals Keep Prices in Check: After we renovate a house, the new buyer still needs an appraisal, and appraisers typically won’t value a house beyond what comparable homes in the neighborhood are selling for.
• Neighborhood Caps: In many areas, there’s a price cap on what homes will sell for, regardless of how nice the renovations are. Trying to exceed this cap can lead to financial disaster.
• Low Appraisals: Sometimes, appraisers will even come in low, assuming that the flipper is making too much profit, which can further limit prices.

Flippers can’t single-handedly raise prices. In fact, most of us aim to buy at a discount to cover our renovation and holding costs while ensuring the home’s final price is competitive.

Do Flippers Just Put “Lipstick on a Pig”?

It’s true that some flippers only make cosmetic improvements, but that’s not the norm. My team and I thoroughly inspect the homes we purchase, addressing major issues like plumbing, electrical, and structural repairs. While cosmetic flips happen, they’re usually the result of specific situations, like a seller needing a quick, hassle-free sale.

When buying homes, we focus on making the property safe, livable, and up to code—because if we don’t, it’ll be impossible to sell it later. That said, bad actors exist in every industry, and there are some flippers who cut corners. That’s why inspections are crucial for homebuyers, especially with flipped homes.

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How House Flippers Help the Real Estate Market

The idea that house flippers hurt the market is flawed. In reality, we contribute by:

• Adding Inventory: Many of the homes we buy are vacant, unlivable, and have been off the market for years. By fixing them up, we make these properties available to buyers, increasing the housing supply in tight markets.
• Revitalizing Neighborhoods: Many homes we flip are eyesores that have been neglected. Renovating these properties improves neighborhood aesthetics and prevents further deterioration.

My House Flip Case Studies

Landlords and Flippers: A Misunderstood Group

Like flippers, landlords are often seen as contributing to housing problems, but this isn’t accurate. There are fewer single-family rentals today than in 2016—1.2 million fewer, in fact. While corporate landlords dominate the headlines, the reality is that more homes are being purchased by owner-occupants than landlords, which reduces rental inventory and contributes to rising rents.

When landlords do buy and renovate dilapidated properties, they’re also adding to the housing supply, particularly for those who can’t afford to buy a home. This added inventory helps stabilize both rental prices and the overall market.

Conclusion

The real estate market is complex, and while there are bad actors, most house flippers are providing a necessary service. By buying homes that are unlivable, fixing them up, and putting them back on the market, we’re helping to increase supply in a housing market that’s always in need of more options. While we aren’t perfect, flippers aren’t the villains of the housing market. We’re just another piece of the puzzle.

Gary and Jay write in Your First Home, “Markets go up and down. The reality is there’s never really a perfect market—just the market you’re dealing with when you’re buying your home.” Mirroring this quote, the market in 2024 and 2023 has given buyers challenges – and opportunities.

June is National Homeownership Month, and it’s a good time to check in on the challenges and opportunities that buyers are dealing with. To help yourself become the economist of choice for your clients, here are some key takeaways from the National Association of Realtors ® (NAR) annual Home Buyers and Sellers Report. If you want bonus points, you can also check on our recap from last year here.

First-Time Buyers

Low inventory and high interest rates have roughly stabilized, with some new construction helping ease both price points and availability. The result is more first-time buyers successfully purchased in the past year.  

• First-Time Buyers Were 32 Percent of Overall Buyers in 2023, Up from 26 Percent in 2022
  A glimmer of good news is that more people are entering their homeownership journey. This past year’s increase is welcome: 2022 had the lowest amount of first-time home buyers since NAR started collecting data in 1981. Still, the average for most of NAR’s records is 38 percent, so this market is still lower than historical norms.
• A Typical First-Time Buyer Is About the Same Age: Mid-Thirties
  The average age of a first-time buyer was reported to be 35 years old, down from 36 years old last year. The combination of student loan debt and high cost of living means delaying homeownership until savings can be built up.
• The Pride of Homeownership Remains Strong
  Over half of first-time buyers (60 percent) reported that the primary reason for purchasing a home was the desire to own a home of their own.

Repeat Buyers

In 2023, there were a recorded 4.1 million home sales, which is one of the lowest numbers in recent history. This number is the same as it was in 2008, when the Great Recession, an economic downturn that began in late 2007 and lasted until 2009, was beginning to take place. Economists are projecting 4.3 million home sales in 2024, about the same as the period immediately following the recession, from 2009-2011. And, as the preceding graph illustrates, sales are trending up.

• Houses Before Legal Spouses
  Last year saw the lowest percentage of first-time buyers who were married couples in over ten years with only 9 percent of buyers being wed. Still, married couples accounted for the largest percentage (59 percent) of recent buyers. Single females remain strong as 19 percent of recent buyers.
• Continuing Presence of Multi-Generational Housing
  As the cost-of-living increases with inflation, many families are finding buying power and stability in purchasing homes beyond immediate families. Fourteen percent of home buyers purchased a multi-generational home, planning to take care of aging parents and children while pooling resources. This number has held steady from last year.

For home buyers wading into the changing market tides and making moves, some interesting trends emerged:

• People Are Moving to Avoid Renovations
  Forty-five percent of most recent buyers who purchased new homes were looking to avoid renovations and problems with plumbing or electricity.
• Decrease in Home Prices
  With the markets softening in areas, historically high home prices are coming down in some markets. Move-up buyers reported that 38 percent of them purchased their new homes because of better prices.
• Speed to Lead Matters
  In what seems to be an evergreen trend, being top-of-mind remains critical. A remarkable 71 percent of buyers interviewed only one real estate agent during their home search.

The dream of homeownership is alive and well, and a challenging market means that real estate agents will be able to provide better guidance and service. As the real estate industry keeps its eyes on interest rates, agents would do well to keep their ears to their local markets. By keeping in touch with challenges that might matter most to your area, you’ll be able to help buyers navigate their next big move.

Looking for more homeownership resources?

Head over to the Your First Home webpage for freebies, including information on how to build out your real estate dream team and for your clients, a resource on how to determine their homeownership criteria. Also, check out Win Big with Seminars: Your First Home for a complete seminar package including customizable presentations, a social marketing plan, email templates, checklists, and more!

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