The first three months of this year saw house flipping jump 20 percent. House flipping is generally measured as houses that are bought and resold within 12 months or less. Although it’s a sellers’ market, buyers want turnkey houses. There is very little retail market for houses needing repairs. There aren’t many but fixers are still available to be flipped.
However, don’t believe the television shows that make house flipping look as easy as finding a bargain house that you can hire contractors to come in and replace the carpet, remodel the kitchen and bath before reselling for a huge profit. Today, 71 percent of flippers are using cash to buy distressed houses. That’s compared to only 27 percent buying with cash back in the housing boom days of 2006. The all cash market makes it tough for first time buyers even if they want to purchase a fixer home.
REO is Becoming Scarce
In recent times, flippers have thrived on foreclosures and bank owned homes. Often, these were not listed on public sales sites. Most retail buyers didn’t know these houses were available. Nonpublic houses are less available today. Flippers are moving more into the public domain. This is tightening the retail market up even more.
In the major cities, all of this just keeps pushing prices up. First time buyers, with little cash, don’t stand much of a chance when banks are requiring large down payments. This rolls over into the rental market that is also seeing housing prices do nothing but go up and up. The U.S. housing market has gone from heated in 2007, to underwater for several years, to over heated again in 2016.
Flippers are buying at much closer to full market value than they have in the past. That means these professionals are reaching for higher selling prices. As a result, housing prices continue going up. Good for real estate agents but not good for buyers. Regular people holding title to a home are reluctant to sell and move up or move down as baby boomers age. The housing market is starting to freeze up rather than expand.
New Construction is Limited
One answer is more new construction. Builders are finding the most profit in new luxury homes. Of course, these are out of the price range for almost all first time buyers. All indications are that all want to be first time buyers are going to remain in the expensive rental market for the foreseeable future.
Unfortunately, government commissions in many urban communities are restricting new building to control population growth. Instead of allowing sprawling developments that have been approved in the past, developers are only approved for individual houses these days. More intelligent thought needs to go into the housing situation as we should learn from what happened over the past 10 years.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.