Back in November of 2019, we wrote about our doubts with the opinion that tightening margins in the house fix and flip industry was an indicator of the softening of the real estate market overall (The Fix and Flip Business is Increasingly Competitive).
Our thesis then – as it is now – is that as long as the supply of houses remains crimped, and demand from home buyers is firm, expect enterprising, disciplined fix and flippers in the right markets to make good returns. Well, here we are, almost a year later, and August existing-home sales have reached the highest level since the end of 2006. No small feat given that the market is still working its way through the largest global pandemic in over 100 years.
And how about the fix and flip market? Well, since we wrote that piece in November, we have experienced an additional nine consecutive months of positive performance in the fund. That makes it a total of 68 consecutive months of positive performance.
In our opinion, the real estate market and the fix and flip industry are doing quite well. Not only are the trends continuing in the right direction, but here at Aloha, we have actually experienced an increase in the amount of real estate investors looking to finance deals with our offerings.
With market fundamentals still solid and the busy spring buying market shifted into the summer and fall, we can expect more muscle from housing in the months ahead, according to Wells Fargo Securities’ Economic Group (August Existing Home Sales Reach Highest Level Since End of 2006 – Scotsman Guide).
One important factor that we do not believe is being captured in these strong housing numbers is the actual poor quality of the available housing stock. Construction of new housing continues to lag the surging home demand. That is not a situation that can be quickly remedied. That translates to more prospective new-construction home buyers needing to enter the market for existing homes.
A great number of these buyers still have expectations of purchasing a home with modern features, design and construction. That is a prime market for real estate investors skilled at the fix and flip business model (aka our partners). We believe that while home affordability remains an issue, consumers will continue to demand housing stock with updated amenities. Therefore, even in this supply-constrained environment, the fix and flip industry will continue to thrive, and us along with it.
(c) Aloha Capital