Hat tip to SD Squatter for sending in this article from the wsj.com:
LADERA RANCH, Calif.—Rising home prices have fueled the return of a practice that some blamed for inflating the bubble: house flipping.
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.
“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.
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.”
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.
“A year ago, I couldn’t give them away. I was definitely swimming against the current,” said Mr. Ganem, who said he flipped 20 houses last year, double the previous year. Before he became a full-time real-estate investor, Mr. Ganem worked as a mortgage broker in Los Angeles. Flippers get a “bad rap” in the public eye, he said. “Most buyers want a home that’s move-in ready. We come in and make repairs that a bank or an underwater owner is not going to do.”
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.
http://online.wsj.com/article/SB10001424127887323463704578497143338013974.html
OC Congresswoman Loretta Sanchez challenged Zimbabwe Ben on this last week. Regular folks can’t afford houses in her district because the easy money is floating speculators and investors.
HT to kwaping who sent this in from UT:
The sentencing date of a Ramona real estate agent who admitted in court to committing mortgage fraud has been moved again, a court document shows.
Teresa Rose, 58, was originally set to be sentenced in December 2012. That date has since been changed twice, to May 20 and now Dec. 9, based on public records.
Rose, who was an agent at Coldwell Banker during the scam, pleaded guilty nearly a year ago to conspiracy to commit wire fraud and launder money. Federal investigators say Rose took part in a scheme to inflate home prices, obtain mortgages fraudulently and skim more than $1.5 million in kickbacks in 2006 and 2007.
It’s unclear why the sentencing date was changed both times. No explanation was given in court records, by Rose’s attorney or by federal officials.
Until sentencing is final, Rose can still list, show and sell homes, says the California Department of Real Estate, which regulates brokers and agents.
The state agency can suspend, revoke or deny a real estate license to a license holder only after criminal convictions are final and the time for an appeal has passed, which is generally after sentencing, the agency has said.
(She has seven sales closed this year, and four pending – but it doesn’t look like she has learned much. It looks like she digs the 5-second short-sale listings! Three closed this year where they were marked contingent on the same day as listing input.)
I think it’s a myth that there is a huge pool of small investors with endless cash who can buy multiple houses without borrowing. This is how it’s done: Win the bidding game by paying cash for the home, then cash out refi, buy another, lather-rinse-repeat. You can get in the game if you have the initial investment. I’ve traced several purchase chains in my area originating from the same investor or group.
Yep. See ‘illusion of demand’. Nothing wrong with flipping. Flipping is a business and there is value add to the work done, most of the time. I am talking about the professional flippers who don’t spray paint over mold and who do the nuts and bolts work necessary to deliver a quality product. That being said, don’t kid yourself that a very substantial part of the demand in the current north county market, paticularly coastal, is propped up by flippers and investors with cheap money. If you took a survey of listing agents who recently sold multiple offer listings, I would suspect that more than half of the offers were investors.
what wrong with making some money flipping a house? We have a bunch of whiners out there who missed the boat again.
If flipping has come back, it’s because no one of consequence has gone to jail. We haven’t reformed banking practices, we haven’t broken up the “too big to fail” banks and most important, we haven’t sent to prison or banned from real estate and finance, the gangster/criminal players who collapsed the world economy.
Most of those “playas” are still out here, counting their money and using it to fuel the next sketchy scheme.
As a nation, we either grow some balls and put an end to this stuff, or what’s left of our economy will get collapsed. Again.
Flipping is a sign there are serious problems in the economy/society. The economy/society is kind of sick.
Rampant flipping, as we had in the last Ponzi housing bubble period, was a sign of serious infection.
We didn’t clean out the infection. The patient is still sick.
Investors buying homes and renting/selling them has historically been a small part of most real estate transactions in the US.
Not anymore. Not since at least 2002.
When housing moved from a place to live in to a ATM machine, it was a clear sign the wheels had come off the wagon.
At this point we don’t seem to want to put the wheels back on the wagon.
If flippers could cause bubbles, then bubbles would never burst because the flippers would never stop flipping because they could always buy a house and sell it for more later.
It takes buyers to cause bubbles.
Didn’t flippers loose money when prices were going south?