Flipping Homes Back To 2005 Levels

Tyler Durden's picture

A month ago when we presented RealtyTrac's analysis of 25 markets where flipping homes is most profitable (yes, they really did that) some thought we were joking: after all can people really be that stupid and forget the crushing aftermath of a housing bubble that popped just seven short years ago driven by the very same underlying factors as the second housing bubble we are experiencing right now. Apparently when the entire economy is flooded in cheap Bernanke (and Kuroda) bux, not only they can, but they will and damn fast too. As for the consequences: this time will surely be different. Either way, we were not joking and as the WSJ followed up on just this topic earlier today, it turns out that house flipping is now back to levels last seen in 2005.

The WSJ reports:

In California, the number of homes sold in recent months that had been flipped—or bought and resold within six months—has reached the highest levels since late 2005, according to PropertyRadar, a real-estate data firm. About 6,000 homes have been flipped in the state this year through April, or more than 5% of all homes sold statewide.

 

While flipping is re-emerging nationwide, brokers say it is happening most in California, where home prices have risen sharply over the past year. Six of the 10 largest price gains in major U.S. cities over the past year have been in California, according to Zillow. In April, home values rose by 25% from a year earlier in San Jose, San Francisco and Sacramento, and by 18% in Los Angeles.

Is there any magic behind the process of buying in order to sell? Nope:

"When prices rise, this trade works. It's not anything more sophisticated than that," said Christopher Thornberg, an economist with Beacon Economics in Los Angeles.

Just in case there were doubt as to how profound human stupidity can be, some are actually debating whether the current flip that house mania is good or bad.

The industry is split over whether the current flipping activity could lead to potential problems. Jed Kolko, chief economist and a vice president at Trulia Inc., an online real-estate site, says the current activity isn't indicative of a bubble. "A bubble is when prices are rising fast from high levels," he said. "We're not there now."

As explained earlier, those doing the flipping are mostly the same asset managers who have access to unlimited funding.

Today's flippers are stronger financially. Flipping homes requires lots of cash because banks aren't making loans to investors who don't have large down payments. While some investors have bought many homes that can be rented out, it usually isn't feasible financially to rent out more expensive properties.

No, they are not stronger: they just happen to be large financial institutions who buy and sell from each other in lieu of a greater fool appearing. Very much just like the S&P. Problem is the same institutions are now starting to quietly get out of the market, seeing how it ends. Everyone else: best of luck.

It gets worse:

Competition for homes "is reaching bubble proportions, and I'm very wary of it," said Rich Worcester, a real-estate agent in San Diego who flipped about 25 homes last year for himself and clients. Mr. Worcester is representing a colleague who paid $675,000 last month for a foreclosed three-bedroom home in San Gabriel, a Los Angeles suburb. After installing new appliances, relandscaping and staging the empty house with furnishings, it hit the market for $867,000 earlier this month. Mr. Worcester said it hasn't yet received any offers, and he conceded he may cut the price.

 

Investors generally make all-cash payments, which gives them an extra advantage over buyers who must complete a lengthy mortgage-approval and home-appraisal process.

 

Robert Ganem beat out four other offers this year when he paid $600,000 for a short sale—in which a home is sold for less than the amount owed on its mortgage—in Ladera Ranch, in southern Orange County. He made cosmetic renovations—fresh paint, new hardwood floors and kitchen tiles—before selling it a few weeks later for $755,000.

Greed may be good, but it is not for those who just want to buy a house for a much more trivial task: to have a place to live.

Meanwhile, the growing competition from investors is unwelcome news for ordinary buyers. After waiting years for prices to hit bottom, "buyers are jumping in before prices bounce so high they can't afford it," said Christine Donovan, a real-estate agent in Costa Mesa, Calif.

 

Parviz Goshtasby, who moved to Southern California three years ago, is finding few homes available to entry-level buyers in Newport Beach, where starter homes can begin at $800,000. "I slowly realized that I can't compete with these investors," said Dr. Goshtasby, a plastic surgeon.

 

After three unsuccessful offers, he agreed to pay $1.6 million for a home in January after the seller agreed to finance a 10% second-lien mortgage, but the deal fell through when the seller later got cold feet. Two weeks ago, he offered to pay the $1.2 million asking price on another home that ended up selling to a cash buyer.

In short: deja vu, all over again. And just like last time, this too will end in tears. Only this time there will be no Fed to bail out the financial system. After all the same financial system only exists now because not only the Fed, but every single central bank have gone all in on doing just what the above described: reflating one final bubble.

We would urge everyone to just stay away from this idiocy, same as the centrally-planned, manipulated, broken stock market. However, for those habitual gamblers who just can't here is the handy guide we presented a month ago - where the profitability of flipping houses is highest in the US.

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Cdad's picture

"When prices rise, this trade works."

And then suddenly...it doesn't...what with leverage being all sucky and what not.

Toss in some negative cash flow and...viola...suck city.  

And then the phone starts ringing at midnight with calls about backed up drains.  This pisses the accountant off even more as he tries to find some jobless sucker to go 24 hours on the call sheet...for $9 bucks per hour.

Right about then, the federal government jumps in, taking away your tax credit or something.  Maybe something revolutionary comes out of dying Freddie...or equally gasping Fannie...and then it all gets really good.  In some sorry assed bid for relevance, some R goes all shizzle with some notion about trying to get along with the Ds.

About then you'll learn about some loan program for "new home buyers" or some other such constructed thing.  You find yourself leafing through the yellow pages for a realtor unconsciously.  

Right about then, you relearn the old poker adage.  If you can't figure out who the sucker is in the first half hour, you're it.  And as you remember this, you'll also remember that two of your renters are in arrears.  

After that comes the Googling of "flipping houses" and "how to close fast"

Welcome to The Recovery.  

Divided States of America's picture

Well according to Krugman, an extraterrestrial lifeform will come and bail out the Fed anf probably by destroying all the empty foreclosed homes all over the country in the process.

markmotive's picture

Apparently China is building an 838 meter high building - the world's tallest.

If that isn't a indication we've returned to bubble land, I don't know what is.

http://www.planbeconomics.com/2013/05/energy-czar-on-tesla-flying-cars-a...

Divided States of America's picture

means shit....it will be vacant anyway before it disintegrates in a year due to poor quality of building materials.....then they will plan to build a 878 meter high building.

The Thunder Child's picture

9 million homes sitting in shadow inventory foreclosure stuffed lala land. Some people never learn....

 

 

Promethus's picture

 

As it will be in the future, it was at the birth of Man — There are only four things certain since Social Progress began: — That the Dog returns to his Vomit and the Sow returns to her Mire, And the burnt Fool's bandaged finger goes wabbling back to the Fire;
12ToothAssassin's picture

A complete economic implosion *IS* the whole plan. How else can you get a Phoenix to rise? Burn the fucker to the ground. Housing bubble, stock bubble, student loan bubble... Thats a trifecta that should start some shit. Mix in a natural disaster or two and BAM! Real Martial law before you know it. (Not the lame martial law we've legally been in perpetually since 9/11)

FEDbuster's picture

throw in loss of reserve currency status for the US dollar, just for shits and giggles. 

Then the currency war goes hot, let's just call it WW3 (guess I'm an early adopter?).

Zer0head's picture

and Blackstone was quietly there when it bottomed and have been following it up whilst pawning it off to rental derivatives

smart emeffers those blackstone folks are smarter than smart

 

snr-moment's picture

Ok.  The fourth is someone asking whats the fourth, right?

Buck Johnson's picture

And that is why this bubble will take down all the rest that are sitting about to pop (Treasuries, Muni's, pensions, etc.).

StopIt.Now's picture

It's not for housing or people, it's for money laundering.  Look up the ZH article on insane buying of zillion dollar housing as a 'cash stash'.

TheFourthStooge-ing's picture

from TFA:

Just in case there were doubt as to how profound human stupidity can be, some are actually debating whether the current flip that house mania is good or bad.

Most people learn at a young age not to put their hand in a fire because it burns.

I would be interested to know if there is a higher incidence among house flippers than there is in the general population of people with a charred stump at the end of an arm.

noless's picture

They're most likely roping in those too young to remember the idiocy, probably the same ones graduating with worthless degrees and a fuck ton of student loan debt.

Or maybe Americans really are just that fucking stupid.

razorthin's picture

Nothing like bag-holding $100s of thousands or $millions of illiquidity when the market breaks on a dime.

TheFourthStooge-ing's picture

Viola is not a who, but a what.

Additionally, you need to look at the expression "viola...suck city" in the context in which it exists.

In this instance, "viola...suck city" refers to a quite unpleasant phenomenon in which the degree of negativity one experiences is comparable to being forced to endure for hours on end an excruciatingly horrid quasi-musical performance using a bowed string instrument which is slightly larger than a violin.

Considering that the article is about a festering swarm of house flippers, it is not unreasonable to expect things to progress from "viola...suck city" to a full fledged orchestral horror section of violins, violas, cellos, and double basses known colloquially as a "string section suicide squad".

Prairie Dog's picture

I see what you're saying. I can get along with the Ds, but I find E minor a real problem.

 

sumo's picture

Viola = misspelling of French word, voila. Roughly translated: Your Uncle's name is Robert

Prairie Dog's picture

I prefer the other guy's explanation

 

DaveyJones's picture

flipping takes on a whole new meaning

Divided States of America's picture

Well i remember back in 2007 when the RE agents were flipping homes like mad and mexican burger flippers were living it up like mad (in 5000 sq. ft. homes)

thatthingcanfly's picture

Man, I'd like to flip HER home.

... if you know what I mean.

NotApplicable's picture

At least I can be happy that I live near NONE of those places.

atomicwasted's picture

A whole 1500 homes in a state of more than 30 million plus people.

Yawn.  Wake me up when it's half the homes on any given block, like it used to be.

NotApplicable's picture

Well, let's see... the chart is only about 300 away from the peak.

Consider this your snooze alarm.

atomicwasted's picture

This tells me that peak is, by itself, meaningless.

 

I'm not saying the Fed hasn't reflated a housing bubble.  I'm saying that worrying about a trivial number of flipped homes in a market that is orders of magnitude bigger is silly.

Conman's picture

Anything can be called trivial until its not. I remember that term being thrown around during the lehman crisis.

noless's picture

Bunch of for sale signs popping up near me, the well maintained ones, not the obviously bank owned ones which have sat vacant for years.

Temporalist's picture

Lumber down again almost 20% for the month I think.

Whoa Dammit's picture

I got a quote for a framing package today from our supplier that was higher than 2005 prices. Lumber futes may be headed down, but prices to builders are going the other direction.

Maos Dog's picture

Yea, I noticed this too, I am HOPING the prices for us drop after the current stock at the yards starts to be depleted. 

bank guy in Brussels's picture

Great links from Jim Sinclair's site:

« Egaña jumped to her death from a sixth-floor balcony on Friday as a legal team from the local court walked into her apartment to foreclose on her.  Receiving no response after ringing the bell and knocking on the door, a locksmith opened the door, only to find Egaña standing on a chair to jump from her balcony.  Egaña was found alive, but paramedics had no chances of saving her life. »

http://www.forbes.com/sites/afontevecchia/2012/11/09/spanish-woman-commi...

---

Spanish police officer stabs banker who sold him near-worthless bank shares :

« on Sunday, a police officer stabbed a former Bankia employee four times after a heated discussion related to the sale of preferred shares in the failed banking group »

http://www.forbes.com/sites/afontevecchia/2013/05/28/spains-bankia-decim...

buzzsaw99's picture

California is a no-recourse state. They will keep buying for any price as long as the banksters will lend them the money. No risk bitchez.

StopIt.Now's picture

Yea, Feds may not bail quite as much, but who knows, they've had ZERO penalites until now.  Stupid Public votes them in again and again, thinking 'this time' they'll 'fix' it.  Insanity, pure insanity.  They CAUSE the issues, then BLAME someone or some thing, then say "Vote for me again, I'll FIX it!"

syntaxterror's picture

It's different this time!!!

SeattleBruce's picture

"Parviz Goshtasby, who moved to Southern California three years ago, is finding few homes available to entry-level buyers in Newport Beach, where starter homes can begin at $800,000. "I slowly realized that I can't compete with these investors," said Dr. Goshtasby, a plastic surgeon."

You know it's tough in fruitland when even the local nip and tuck guy can't compete...

random shots's picture

Heaven forbid he has to buy in Coto de Caza or....Irvine!  Won't someone think of the plastic surgeons!

DaveyJones's picture

hey, white trash has cosmetic needs too

nmewn's picture

Speaking of white trash, check this guy out...lol.

"Union fat cat Mark Rosenthal spends more time sleeping at his desk than organizing labor, a series of damning photos reveals.

The 400-pound president of Local 983 of District Council 37 — the city’s largest blue-collar municipal-workers union — often downs a huge meal, then drops into dreamland in the early afternoon, members of the union’s executive board told The Post.

“He eats lunch when he arrives at work at 2 p.m. Then, like clockwork, he goes to sleep with a cup of soda on the table and the straw in it,” said Marvin Robbins, a union vice president.

“Then he wakes up, looks at his watch and says, ‘I have to get out before the traffic gets bad.’ He’s usually out by 4 p.m. after being at the office two hours.”

Rosenthal is a former Parks Department employee who rose to power campaigning to rid the union of corruption in the late 1990s.

He last made embarrassing headlines in 2009, when he inspired a City Council bill requiring jumbo-size ambulances for morbidly obese patients after he had a stroke at City Hall."

http://www.nypost.com/p/news/local/labor_big_real_heavy_sleeper_jl3C7gI710FI3XqpEl5o3O

I swear, we're doomed.

snr-moment's picture

Why?  Where else would you want him, other than a chair?  Managing a lock and dam?

nmewn's picture

I'm thinking the dues paying members who actually work to feed his gluttony would be fine with him "managing" a lock or a dam...in another state.

gold mans sack's picture

Rosenthal is not a white surname.  Sounds Ashkanazi to me.

nmewn's picture

He looks white to me. What does an Ashkanazi look like?

reTARD's picture

I know someone exactly like that at the University Medical Department where I used to work. Same size, a good brown-noser, and sleeps at the desk all the time. It really helps that he works at the Dean's Suite where they are always "gifted" with free food and stuff from the big-pharma companies. In fact, other workers have documented his sleeping with photos.

malikai's picture

I read about this great worker's hero earlier today.

He's pals with our man Bloomberg.

How do people who supposedly work for a living let a guy like that be their union boss?

nmewn's picture

It would appear there is some palace intrigue going on inside the "workers paradise" of the union hall...again.

The reporter was granted full access to Jabba ;-)

SeattleBruce's picture

"Competition for homes "is reaching bubble proportions, and I'm very wary of it," said Rich Worcester, a real-estate agent in San Diego who flipped about 25 homes last year for himself and clients."

Wait a sec here - he's wary of it, but is caught right up in the middle of the flipping...nice...

Blano's picture

As long as he's not the last man standing, he's good.