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