Hot housing: Investors and ‘flippers’ buying record number of Triangle homes

RALEIGH – For those seeking housing, Raleigh’s apartment crunch isn’t the only challenge, as real estate investors continue to buy up homes across the region to convert them into rentals.

Through the first quarter of 2022, investors bought more homes in the Raleigh area than in any first quarter, an analysis of data provided to WRAL TechWire by national real estate brokerage firm Redfin shows.

The data set begins in 2020—and for the first quarter of 2022, investors bought 1,086 homes in Raleigh, a jump of 16.6% from the first quarter of 2021.

Those sold homes are 22.4% of the entire for sale market, according to Redfin’s data, meaning that more than 1 in 5 properties in Raleigh sold during the first three months of the year were bought by investors.

In Durham, investors bought 20.4% of homes sold in the area in the first quarter, an increase of 18.6% from the number bought in the prior year.

However, there may be some signs the real estate market is becoming less competitive.

Why? In May 2022, data from Triangle Multiple Listing Service (TMLS) that was obtained by WRAL TechWire showed that the number of home showings decreased dramatically during the month.

And mortgage applications are down, indicating there are, potentially, fewer active homebuyers looking to compete in the real estate market. Still, plenty of homes are receiving multiple offers, but the median price of homes sold in May 2022 in Wake County remained flat while in Durham County, the median price dipped a bit in May 2022 compared to April 2022, according to TMLS reports.

RELATED: The dream of owning a home is out of reach for 4 million Americans

Investors are still flipping Triangle homes

Still, there are profits to be made in the Triangle’s real estate market, ATTOM Data Solutions says.

That’s in the segment of the market where an investor will buy a property, make improvements and repairs, and list the home for sale again.

This practice, known as flipping, increased in both Durham and Wake County during the first quarter of 2022 compared to the first quarter of 2021, ATTOM data showed.

In Durham County, flipping was up 118% year-over-year, with 252 flipped properties, and in Wake County, flipping activity increased 64% with 714 properties flipped in the first quarter.

In fact, of all metro areas tracked in the study by ATTOM that have a population of less than one million people, the Durham-Chapel Hill metropolitan statistical area had the highest flipping rate, at 15.3% of homes. And in the Raleigh metropolitan statistical area, 76.5% of all homes bought with the intention of fixing and flipping the property were bought in cash, the data shows.

Triangle’s apartment crunch worsens – vacancy down, and price of rent jumps 20%

Even as gross profits, gross ROI decreases

But the practice may be becoming less profitable for real estate investors, the data indicates.

“The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers, as evidenced by this quarter’s report, which shows that one of every 10 homes sold during Q1 was a flip,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation rates, and buyers have become more selective – and less willing to outbid other buyers for properties they’re interested in. This is having a predictable impact on profit margins for investors.”

According to the data, the gross return on investment for the median flipped property in Wake County was 13.1% during the quarter. But that’s down 5.8% from the previous year. In dollar terms, however, there was not much difference, as the gross profit for the median flipped home was $46,000 in the first quarter of 2022 and $46,250 in the first quarter of 2021.

The same is not true in Durham County, where the gross profits and gross ROI of the median flipped home fell dramatically in the first quarter of 2022 compared to the first quarter of 2021.

In the first quarter of 2021, flippers of the median flipped home saw a gross return of $93,500 and a gross ROI of 26.7%. But in the first quarter of 2022, gross profit was found to be $58,700 and gross ROI found to be 19.8%.

Rental crunch worsens

A new national report on the state of the country’s housing markets found that Raleigh is among a group of 20 U.S. regions where rents have spiked the most in the past year.

The report, “The State of the Nation’s Housing 2022,” found that across the United States, rents grew at a record pace in the early part of 2022, including a national increase of 12.4% year-over-year in the single-family segment of the market.

And even though rents increased by double digits in 116 out of the 150 metropolitan statistical areas tracked in the study, they increased 22 percent in Raleigh. That puts the capital mong the top 20 in the county, according to the report and a corresponding fact sheet published by the authors, the Joint Center for Housing Studies of Harvard University.

Further, there are signs that even if the Triangle’s for sale market cools as mortgage interest rates rise—as they did again this week, just a bit after rising more than a half percentage point last week, according to the latest data from Freddie Mac—the monthly price of rent for available housing units in the Triangle may continue to increase as well.