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Health & Fitness

Is Housing Flipped Out?

Housing prices were on a parabolic rise from the late 1990s through the mid- 2000s; it was possible to purchase a property with no money down, an interest only mortgage, and very little in the way of documentation. Housing and construction boomed, banks loan origination departments flourished, and individuals/corporations who bought and quickly resold were in a position to make a lot of money. Prices seemed to only be able to go one way, upwards.

We all know how that ended.

The precipitous decline of the housing market and related industries has been well chronicled so that is not what I am going to re-hash here. Instead, what I would like to focus on is what has happened since – the rise of flippers and cash buyers. These two subsets of purchasers are, if you take a step back, a logical and inevitable consequence of the property crash. When homes were foreclosed and left vacant or developers ran out of funds to finish projects these properties sat vacant, sometimes for years. At the same time the same banks that had lent so freely to virtually anyone who signed up for a loan found themselves at the epicenter of the worst financial crisis in modern history.

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In other words – neither the lenders nor developers were going to be leading any type of recovery in the short term.

Flipping has taken over T.V. The Discovery channel hosts “Property Wars,” A&E hosts “Flipping” San Antonio/Boston/New Haven/Atlanta/San Diego/Vegas, Spike hosts “Flip Men,” and HGTV hosts “Flip or Flop.” All of these shows, despite their different locations and corporate parents, have the same basic premise. Investors purchase homes that have been abandoned or are just beat up, fix them up, and resell them all within a very short time frame.

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Cash buyers go hand-in-hand with this; if banks were not going to extend credit to potential home buyers with anything less than perfect credit, it was only a matter of time before people who had cash available moved into the market. Without the competition of people with financing all-cash purchasers are/were able to scoop up properties for less than they would have sold otherwise.

Like stated above all of the these developments really are quiet logical if you look at the property market from an objective point of view – a supply overhang had been created, and when prices declined enough it made financial sense for potential purchasers to step in.

My questions are as follows. With the stunning rise and popularity of “flipping” T.V. shows, the actual practice of flipping (I have received at least 3 detailed proposals inviting me to be an “investor” in a house flipping project), and the equally stunning rise of all cash purchases in the market place, what does this mean going forward? Compounding those factors, many of the largest financing institutions have announced substantial reductions in the amount of refinancing applications they have been receiving as interest rates have been to creep upwards. What does this mean for the newly reinvigorated homebuilders? Will this create more demand for all-cash buyers, or have they already purchased all of the “good deal” properties? Will the flipping “bubble” begin to pop as the newly renovated homes sit on the market due to lack of interest from all-cash buyers and a lack of purchasing ability from “traditional” buyers?
I don’t know the answers to these questions, but I would love to hear what you think!

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