• In April, US home prices saw their first year-over-year decline in 11 years, with the S&P CoreLogic Case-Shiller National Home Price Index dropping 0.2% due to higher mortgage rates. Despite this, the index increased by 0.5% compared to the previous month.

• The rise in mortgage rates slowed down home sales, causing affordability to reach its lowest level since November. However, prices didn't decline significantly as homeowners were reluctant to sell, resulting in a lower supply of homes on the market.

• The average 30-year fixed mortgage rate was 6.67% compared to 5.81% a year earlier. The market started to recover in April, with prices peaking in June 2022, declining until January 2023, and then rebounding.

Declining demand for fixer uppers

• Buyers in the current housing market are showing less interest in purchasing homes that require major renovations. The demand for unrenovated properties has dropped, as buyers are deterred by high mortgage rates and the additional costs and complexities associated with renovation projects.

• This shift is reflected in fewer offers received by sellers compared to a year ago. The widening gap in sale time between turnkey homes and those in need of repair is driven by higher rates for home loans and construction loans, on top of already high property prices.

• Buyers, including those looking for second homes, are preferring move-in ready properties and are becoming more selective about homes that require upgrades. The market for homeowner improvement and repair projects, however, continues to grow, driven by existing homeowners looking to upgrade without giving up their low mortgage rates. In areas with limited housing supply, buyers may have no choice but to purchase homes that require work, while in other areas, bidding wars for unrenovated houses can still result in high sale prices.

• How does this impact Groundfloor’s Borrowers? The current market trend of reduced interest in homes requiring major renovations can benefit Groundfloor borrowers by providing less competition during property acquisition, allowing for more favorable purchase prices and terms. Additionally, once the renovations are completed, the improved condition of the property can attract more offers and higher prices, benefiting our borrowers during the sale or rental process. This combination of reduced competition during acquisition and increased demand for upgraded homes can enhance the success and profitability of our borrowers' real estate projects.

• ATTOM, a leading curator of land, property, and real estate data, released its Q1 2023 U.S. Home Flipping Report. The report revealed that 72,960 single-family homes and condos were flipped in the United States during the first quarter, accounting for 9% of all sales. Although slightly lower than Q1 2022, this marked the second-highest level of home flipping this century. Profits and investment returns showed a slight increase from Q4 2022 to Q1 2023, but remained near the lowest points of the past decade.

• The typical profit margin saw a modest reversal, increasing to 22% after three years of continuous decline. Rob Barber, CEO of ATTOM, cautiously remarked that the gain might be temporary, warning investors about carrying costs that could diminish the 22% return on gross profits. Nevertheless, the report offered hope for investors, suggesting brighter times ahead.

  In terms of numbers, the gross profit on typical transactions increased to $56,000 in Q1 2023, down 20% from the previous year's first quarter. However, the total profit of typical flips saw a 4.7% increase from Q4 2022.

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📃June Housing Report by Realtor.com