Updated March 24th, 2024 at 13:13 IST

Housing market woes: Reality TV stars and contractors feel pinch of flipping slowdown

The number of Americans acting as investors in the housing market dived 38.85% between 2021 and 2023’s fourth quarter.

Reported by: Business Desk
Housing market | Image:Pexels
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Housing market crunch: The rise in interest rates orchestrated by the Federal Reserve in recent years hasn't just put a strain on the broader housing market in the United States—it's dealt a particularly heavy blow to those involved in home flipping, from small-scale contractors to well-known faces from reality TV.

Take Tarek El Moussa, for instance, known for his role in HGTV's "The Flipping El Moussas" and formerly co-hosting "Flip or Flop." El Moussa openly admits to taking a major hit financially due to the impact of interest rates on his ventures, stating bluntly, “I got my ass kicked last year. I lost a lot of money.”

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Flipping frenzy fades

Indeed, the fervour surrounding house flipping, which involves buying and often renovating properties with the aim of selling them at a profit, has seen a notable decline since the peak experienced during the COVID-19 pandemic. Figures from property data provider ATTOM Data Solutions indicate a nearly 39 per cent drop in the number of Americans participating in the housing market as investors between 2021 and the fourth quarter of 2023. Similarly, a report from real estate and mortgage firm Redfin highlights an 11 per cent year-over-year decrease in the share of homes purchased by investors over the same period.

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Despite these declines, housing investors still have poured $32.3 billion into US properties in 2023. However, this marked a decrease from the $33.6 billion spent the previous year. Additionally, flippers found themselves grappling with a sluggish market characterised by limited inventory and tepid demand, a stark contrast to the frenetic activity seen during the initial stages of the pandemic.

For individuals like Elisa Covington, a Bay Area-based investor, the returns on investment that once soared to heights during 2021 have now tapered off to more modest levels, typically ranging between 30 per cent to 40 per cent. The reduced demand from homebuyers would theoretically ease the process for investors seeking single-family homes. Still, the persistent lack of inventory has posed a major challenge, impacting acquisition trends.

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Construction suffers setback

Meanwhile, construction companies have also felt the pinch, with decreased home investment leading to a decline in new business activity. Ghulam Mustafa, owner of Sahara Builders in New York, reports a 40 per cent drop in profits since 2021 due to a reduction in full-gut renovation projects.

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The repercussions extend to contractors as well, who find themselves contending with lower profit margins and reduced labour resources for renovations, consequently slowing down sales. Julio Martinez of JATS Properties in Los Angeles recounts having to let go of a full-time handyman, resulting in less attention dedicated to home-flip projects.

In response to these challenges, flippers are diversifying their strategies. Martinez has ventured into making property-secured loans to aspiring investors, while El Moussa has shifted his focus towards wholesaling home purchase contracts as a less risky alternative to traditional flipping.

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Reality TV adapts

The impact of these market shifts is also reflected in the world of reality TV, with HGTV experiencing a decline in ad revenue from shows like "The El Moussas." To adapt, the network is exploring new show formats focusing on more approachable price points and alternative housing configurations to maintain viewer engagement.

(With Reuters Inputs)

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Published March 24th, 2024 at 13:13 IST