Market Conditions Changing, be aware!

[Will Barnard]

For those who do not know me, I have been predominantly focusing on rehab flips for the past 2 years here in my own backyard (Southern CA). In that time, I have been very successful and chose to make this my focus because fo the market conditions here: Abundance of buyers, affordability level of homes, lack of inventory, and abundance of REO properties at great discounts (if you know how to find them and get them before others).

I prided myself on hitting large profit margins, usually $50k or more per flip net before income taxes, but on occassion, could take smaller margins due to the almost guaranteed fact the home would sell instantly and for full price. Knowing this fact was derived from my knowledge of the market conditions.

Today, times are changing. Inventory levels are increasing, buyers are decreasing, and the tax credits form both the feds and the state (CA) are gone. Please keep in mind this info is based ONLY on SO CAL and does not necessarrily reflect other areas and states in the country.

What does this mean to me and other investors like me? Well for one, we can no longer take the tighter profit margins as we may not find buyers right away, we may have to deal with buyers requests for repairs, we may have to give closing costs, etc. etc. Keeping with the higher margins will allow us to have a back-up for these potential additional costs to sell/holding costs and keep us from getting into the red on any one flip.

Does anybody else have similar market condition changes in your local markets? I am quite sure that the federal tax credit going away has affected most of the buyers markets in the country.

[Mitch Kronowit]

Originally posted by nationwidepi:

I am quite sure that the federal tax credit going away has affected most of the buyers markets in the country.

Perhaps, but I also think the affect is short-term. In the last couple of months of the tax credit, purchasing was up, which no doubt caused prices to rise by a small degree. No problem for the buyers since they were getting an $8,000 boost from Uncle Sam.

Now the credit is gone, the frenzy is over, so prices are probably going to correct down, maybe by the same amount the tax credit drove them up. No problem again. Like someone here said, there is a price at which any home will sell.

What I believe we'll see now is the "mix" of buyers, which shifted positively towards "first time" retail home buyers during the tax credit, change back to more investors and multiple home buyers (those who had to sit on the sidelines while they couldn't cash in on the tax credit), who are going to enjoy the reduction in price once again.

I'm already seeing prices on homes in South Orange County I couldn't have believed even last year.