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Home-Flipping Bubble Bursts For All But The Uber-Wealthy... Where It Explodes By 350%

Tyler Durden's picture




 

While the housing market has been undergoing a painful end to its latest, fourth in the past five years, dead cat bounce as the REO-to-Rent fever has now reverted to room temperature, as banks start to release distressed properties from their foreclosure stuffing shadow inventory, and the spike in rates has pretty much killed any interest in mortgage originations by common Americans (now at 2013 lows), there was at least one spot where ordinary speculators could make a quick buck: engaging in America's favorite pastime from 2004-2007, flipping houses. It got so bad that, in a page right out of the last housing bubble, real estate firms like RealtyTrac released reports such as "Top 25 markets For Flipping Houses." Sadly, thanks to the Fed's perpetual QE which continues to hand over what little is left of middle class wealth to the uber-wealthiest, flipping is now a hobby reserved solely for the richest.

As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year.

Not surprisingly, the bulk of the ultra-luxury flips were limited to New York and the four core California bubble markets. "More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego.  Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year."

Specifically, RealtyTrac notes that there were 32,993 single family home flips — where a home is purchased and subsequently sold again within six months — in the third quarter of 2013, down 35 percent from the second quarter and down 13 percent from the third quarter of 2012.

More from the RealtyTrac report:

The report also shows that real estate investors made an average gross profit of $54,927 on single family home flips in the third quarter. That was up 12 percent from an average gross return of $48,893 in the third quarter of 2012.

 

The higher gross profit was driven in part by an increase in high-end flips on homes that were sold by flippers for $750,000 or more. A total of 968 high-end homes nationwide were flipped in the third quarter, down 13 percent from the previous quarter but up 34 percent from a year ago. More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego.  Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year.

 

“Increasing home prices over the past 18 months combined with decreasing foreclosures have created a market less favorable to the high quantity of middle- to low-end bread-and-butter flips that we saw late last year and early this year,” said Daren Blomquist, vice president at RealtyTrac. “But the sharp rise in high-end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes. With that higher risk also comes the potential for higher reward. The average gross profit on each high-end flip equals more than four times the average gross profit on each flipped home in the lower price ranges.

 

The number of single family homes flipped in the third quarter decreased from the previous quarter and a year ago nationally, but flipping numbers were still up from a year ago in some markets such as Los Angeles (11 percent increase), New York (14 percent increase), Detroit (13 percent increase), Atlanta (32 percent increase), Las Vegas (9 percent increase) Chicago (28 percent increase) and Seattle (23 percent increase).

So for those who are selling houses to Russian and Saudi oligrachs looking for their next California beach house or New York Pied a Terre, congratulations. Everyone else, sorry - your bubble just popped:

Meanwhile home flipping decreased substantially from a year ago in several former flipping hot spots such as Phoenix (37 percent decrease), Tampa (47 percent decrease), Orlando (28 percent decrease), and Stockton, Calif. (down 37 percent).

Finally, some perspectives from local brokers:

“We’ve seen a noticeable decrease in the number of flipped homes throughout central Ohio in the third quarter,” said Michael Mahon, executive vice president/broker of HER Realtors, covering the Cincinnati, Columbus and Dayton, Ohio markets.  “The decrease is likely due to increasing rental rates and a decrease in the overall supply of REOs being released on the market.”

 

“As rent and home prices escalate and the number of available REOs continue to decline there are fewer people who are buying homes to flip.  House flippers are kind of a misnomer as they’ve turned into what I like to call ‘holders’,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty covering the Oklahoma City and Tulsa markets.  “Being a house flipper meant buy it, paint it, sell it.  Now it’s turned into buy it, paint it, rent it, and hold it.”

And not surprisingly, the bifurcation in the home flipping market - where it has now become exclusively an ultra-wealthy sport - has near identical parallels to what is happening in that other bubble market: stocks.

 

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Thu, 10/17/2013 - 15:53 | 4066372 NOTaREALmerican
NOTaREALmerican's picture

Why, it's almost like the country is run by and for the benefit of the top 1%.

Thu, 10/17/2013 - 16:04 | 4066387 The Juggernaut
The Juggernaut's picture

And whoever mentioned that Jim Rogers was in cahoots with George Soros... Yes they both founded the Quantum Fund based in Curaçao.  Soros handles it now.

 

Anyway, Rogers lives in Singapore now...

Thu, 10/17/2013 - 16:27 | 4066497 Running On Bing...
Running On Bingo Fuel's picture

You're crazy! That's like saying that ZH is run by the Israelis. It's just plumb crazy!

Thu, 10/17/2013 - 16:34 | 4066517 Running On Bing...
Running On Bingo Fuel's picture

How dare you negate me by one!

Fukin down_vote_bot just woke up...

Thu, 10/17/2013 - 23:48 | 4067795 jonjon831983
jonjon831983's picture

I've seen some Roger interviews and whenever he is asked about Soros, he skirts it and says good for him... I dunno what he's up to now.

 

Curious what happened between them.

Thu, 10/17/2013 - 15:58 | 4066392 greatbeard
greatbeard's picture

>> by and for the benefit of the top 1%

Now now, no class warfare.  You can climb your way to the top just like they did.

Thu, 10/17/2013 - 15:59 | 4066397 Renewable Life
Renewable Life's picture

85 Billion a month hasto go somewhere, i think we all can see where!!!

Thu, 10/17/2013 - 23:27 | 4067770 DeadFred
DeadFred's picture

I'd love to see the numbers. This could easily be pure money laundering. If you and your drug cartel partner each have a few hundred million in dirty money you buy a house, flip it in a sale it to your partner for a small profit, he buys another house and flips it to you. You both end up with mansions and a bunch of clean cash. Of course no one would ever think of actually doing such a thing.

Thu, 10/17/2013 - 16:06 | 4066428 Gringo Viejo
Gringo Viejo's picture

1% flip houses. 99% flip burgers.

Thu, 10/17/2013 - 16:25 | 4066494 Peter Pan
Peter Pan's picture

And even the hamburger flippers are in trouble. There are hamburger machines which make, cook and package hamburgers at the rate of 360 burgers an hour.

Thu, 10/17/2013 - 16:26 | 4066495 williambanzai7
williambanzai7's picture

Why do you say "almost like"? What else could it be?

Thu, 10/17/2013 - 15:59 | 4066398 ebworthen
ebworthen's picture

No doubt there was a similar bubble in France right before the guillotines rolled.

Thu, 10/17/2013 - 16:02 | 4066407 therealmonty
therealmonty's picture

It's just as easy to be underwater on a $50 million home as it is on a $50,000 one.  I can't wait to see what kind of bailout package these assholes ask for when the bubble has finally popped.

 

Thu, 10/17/2013 - 16:31 | 4066508 Running On Bing...
Running On Bingo Fuel's picture

If you got it, where you going to park the free $350 million that you made on the 666 stock ramp?

Equities, bonds, or real property?

Over.

Thu, 10/17/2013 - 16:30 | 4066510 Widowmaker
Widowmaker's picture

Like it is a surprise without a working prototype.

Hint: TARP!

Thu, 10/17/2013 - 16:19 | 4066434 Rainman
Rainman's picture

The wealthy Chinese are coming. Buy a home, become a permanent resident.

http://usatoday30.usatoday.com/money/economy/housing/story/2012-04-03/us-homes-lure-chinese-buyers/53977638/1

 

Thu, 10/17/2013 - 16:22 | 4066485 Peter Pan
Peter Pan's picture

Maybe they should flip the Whitehouse to someone with balls and brains as well.

Thu, 10/17/2013 - 16:34 | 4066514 Widowmaker
Widowmaker's picture

Who wants to buy a house with a black suppository?

Thu, 10/17/2013 - 16:35 | 4066520 seek
seek's picture

You know, as someone who is in the 1%, this isn't even a 1%-er level thing. You're looking at a mortgage payment of 15-20K/mo on a $3M loan. That's basically $200-$250K/year just for the morgage payment, and that means incomes of about 650K+ to make the numbers work, and probably higher. That's more than double the adjusted gross income needed to be in the 1%.

No, this is likely the 0.1% and also just flat out wealth. In my area, most of these deals are going down with cash, not mortgages, so you're looking at people with assets well in excess of the average 1%.

Thu, 10/17/2013 - 16:47 | 4066570 Fix It Again Timmy
Fix It Again Timmy's picture

Years ago, my wife and I were backpacking in the White Mtns. in NH; being above the tree line, we had an exceptionally fine vista.  We kept seeing this large building that we couldn't figure out what it was.  Finally, we came out of the mountains and I was determined to see what that huge building was.  It happened to be a Saturday evening and I drove in the general direction I surmised the gargantuan dwelling was.  Eventually, we came upon a circular road which had an exquisite lamp post about every 100 feet.  Finally, we came up to this huge hotel which was the Bretton-Woods Hotel.  My exquisitely beat-up and rusted Opel pulled up to the covered entrance and there were exceptionally well-dressed men and women all about.  They looked at my wife and I like we were some alien species from a hostile planet somewhere in the galaxy.  A doorman then came up to the car and asked if he could help and I said, "Yeah, I'm looking to grab a few beers."  He said he was very sorry but a suit jacket and tie were necessary to enter.  Having only a tee shirt and shorts which served me the better part of a week backpacking, my chance to rub elbows with the .1% was squashed.  Nevertheless, I will never forget the looks of the .1% when we pulled up to their habitat - they really didn't know how to act but I certainly could imagine them flipping multi-million dollar homes - the sorry bastards....

 

Thu, 10/17/2013 - 17:16 | 4066673 Peter Pan
Peter Pan's picture

Those lamp posts you mentioned may well come in handy one day.

Your story reminds me of the fellow who was struggling through the desert looking for water when suddenly he sees a kiosk. He goes up and asks for a drink only to be told that the kioskonly sells ties.

He goes on struggling on his knees and comes to another kiosk. He asks for water and is told that they only sells ties.

He goes on and on only to encounter the same scene again and again,

Then suddenly he sees a beautiful resort. By this time he is struggling on hands and knees but crawls up to the main entrance.

The doorman asks him what he wants.

The man replies with a very hoarse and barely audible voice, " I want some water."

The doorman looks at him and replies, "iI am sorry sir but entry is not allowed without a tie."

Thu, 10/17/2013 - 17:26 | 4066702 W74
W74's picture

Well for one I hope they get stuck holding a lot of bags.

But more pertinant to your story is the fact that many of them (if they were truly part of the 0.1%, certainly part of the 1%) grow up very much like bubble children sheltered from the outside world. 

They can't understand what the world is like outside of their thought bubble and are truly shocked when they catch glimpses of it.  Think Hank Rearden's wife in Atlas Shrugged, and many of the 1%ers in the Fountainhead.  This is true both of liberals (who want to share the wealth of others, but without sullying their hands to do so, there are servants for that kind of thing!) and of conservatives who might not realize that not everyone has the connections they were born into which facilitate easy generation/accumulation of wealth.

You to them were a barbarian at the gates, and not only that but you penetrated the walls they had set up between them and the outside world they'd rather not see (or deal with).  What if you wanted to....talk to them.  What if you wanted to hurt them....? 

Surely Jeeves would not be able to stop the onslaught of t-shirt wearing nomads if they were determined to do harm!?!  Perhaps it was good to them that old Jeeves possessed the tact of Pope Leo I and was able to convince Attila in his Mighty Opel riding toward Rome to turn his backpacking horde around toward more familiar pastures.  --W74

Thu, 10/17/2013 - 17:07 | 4066646 W74
W74's picture

Home Sales are UP.

There's never been a better time to buy. Do it now.

The "Average" (not median) Sale price has gone up 17% since last year.

Rates are at historic lows.  Here sign this agency agreement binding you to work with me as your exclusive representative.

Las Vegas and Phoenix are up 100% since 2008.

Prices will only continue going up. Buy now and Save.

This is a great neighborhood (I've driven through here once or twice) with great schools (never been to the schools) on the upswing (please don't check the local police report map).

Rates this low won't continue forever.  Buy now.  Buy now.  Buy now.

Sorry guys, been studying for my real estate license.  Did I pass the test?  All I need now is a Lincoln Navigator and some gel in my hair and I should be open for business.

Thu, 10/17/2013 - 17:19 | 4066681 Peter Pan
Peter Pan's picture

Unfortunately stampedes in real estate take place in both directions so timing is very important and cash flow is important if your timing is wrong.

Thu, 10/17/2013 - 19:34 | 4067069 pursueliberty
pursueliberty's picture

You a corny saying a even cornier picture of you in a few places, but otherwise I think you've got it.

 

I'll tell you this with a now ex wife who owns a RE company that there are very few ways to make a metric shit ton of money with very little actual work.  She works 6-7 days some weeks, but even then the hours never hit more than 30.  Not a bad way to make a six figure income.

 

I'm working with a realtor right now for relocating and she makes more than her husband who happens to be a plastic surgeon with a decent business.  The owner of a good re business can make a seven figure income in even a somewhat small market.  Pretty crazy to consider for what they really do.

 

Disclaimer: I do hold inactive RE license

Thu, 10/17/2013 - 20:56 | 4067347 W74
W74's picture

6%?  Who in their right mind would pay 6%?  I really have no idea how that became the standard.  1% maybe.  2% is certainly pushing it, especially considering that few actually drive around and know (and truly understand the dynamics of) the neighborhoods they operate in.

Thu, 10/17/2013 - 22:00 | 4067518 pursueliberty
pursueliberty's picture

I've seen 7-10% several times.

 

I've also seen 4% a lot.  I really don't know how 6% became a standard, but i concur with it being entirely too high.  What are they really doing to deserve $20k on a $300k home. 

 

I know a guy who sells homes on a lake and he commonly gets both sides of commision and nets 80%.  Last year I think he only sold a few homes and still make almost a hundred.  He works maybe 16 hours a week.

Thu, 10/17/2013 - 22:22 | 4067600 Yenbot
Yenbot's picture

with a now ex wife who owns a RE company

I just coughed up vomit for you...

Thu, 10/17/2013 - 17:55 | 4066782 Hongcha
Hongcha's picture

If I had to hazard a guess, I would say ZH is a Russian outfit.

Thu, 10/17/2013 - 18:16 | 4066844 Peter Pan
Peter Pan's picture

If Zerohedge is a Russian outfit, then that really says something about how far up they have come and how far down the USA has gone.

In any case the message and not the messenger is more important. And of even more importance is your critical thinking.

Thu, 10/17/2013 - 18:42 | 4066907 Papasmurf
Papasmurf's picture

It's a scramble to convert stolen fiat into hard assets.

Thu, 10/17/2013 - 18:56 | 4066943 Notarocketscientist
Notarocketscientist's picture

So the smart money is flipping - who's buying?  Or is it a game of musical chairs and they are just hoping to get a chair before it call crashes?

Thu, 10/17/2013 - 20:17 | 4067222 evernewecon
evernewecon's picture

 

 

The Real Estate "Recovery's"

A Crock

 

http://dailydishrecipes.com/wp-content/uploads/2005/12/Crock-Pot-Slow-Co...

 

 And An Illusion 

Because Of These 4 Things,

Or 3 Things, If You Count The

First 2 As Working Together:

 

1  And  2

The "Price Dispersion" Effect

(Jibberish For Selling Ladas

 

https://www.youtube.com/watch?v=fmENKHmGUX4

 

And BMW's One Year, And 

Only BMW's The Next)

Combined With Case Shiller's

Method Of Indexing

http://pages.citebite.com/d1i8e3n1t3rpv

 

3

The Carriage Of Delinquent

Assets By The Public, Which

Is Essentially The Financing

Of Dead Weight So The

Buyers Of Those Investments

Can Keep On Keeping On 

In The Manner Of John Corzine.

 

4

The Fact That Millions Of 

Homeowners Never Left The

Position Of Being Underwater 

And Literally Can't Afford To

Market Their Homes Lest

They Pay In Large Sums To

Their Mortgagees, Even Upon

Closing Of The Sales Of Their

Homes.

Even Where That Does Not 

Appear Being The Case Owing

ToThe Case Shiller Index, 

Nominally, It Would, I Believe 

Be Far More The Case Were

More Thrift Withheld 

Properties Marketed.

 

Keith Jurow Has Never Published

A Non-Fact Based Thing.

More Recently.

 

 

http://www.keithjurow.com/what-if-housing-bulls-are-dead-wrong/

 

 

http://www.multiurl.com/la/Self_Defeating_And_Profitable_Adversity_Creat...

 

 

http://www.multiurl.com/la/Self_Defeating_Ill_Conceived_Bailout_Of_The_B...

 

 

 

 

Fri, 10/18/2013 - 08:34 | 4068232 Hedge Fund of One
Hedge Fund of One's picture

Uber-wealthy selling to each other at ever-higher prices doesn't bother me. I think it will end badly for them, too.

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