Home Flipping at 10 Year High?

Question

According to CNBC.....Rising home prices are bringing more house flippers out of the woodwork, and that may be a sign of an overheating housing market. The number of active home flippers last year was the highest in nearly a decade, and it is only growing.

Nearly 180,000 family homes and condos were flipped in 2015, according to RealtyTrac. A flip is defined as a home that is bought and sold again within the same 12 months. Flips made up 5.5 percent of all sales last year, and that is the first increase in the flip share after four years of shrinking. Flipping increased in 75 percent of U.S. markets, and the profits are growing as well.

"As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon," said Daren Blomquist, senior vice president at RealtyTrac. "Not only is the share of home flips on the rise again, but we also see the flipping trend trickling down to smaller investors who are completing fewer flips per year."

(http://www.cnbc.com/2016/03/03/home-flipping-reached-10-year-high-can-you-say-froth.html)

What are your thoughts this? Are they calling wolf or is there something to this?

Albert Okagbue · Answer

Ha! Makes sense.

Shanequa J. · Answer

@Albert Okagbue I don't like flipping shows at all. I used to watch flip this house and property ladder before drama became fashionable. I've tried the new ones and they are over exaggerated with fake conflict.

Albert Okagbue · Answer

@Shanequa J. That's an interesting standard to use. I remember before the stock market crashed in China people said that even cab drivers were making money in the stock market. The idea is that cab drivers aren't dumb....but that they are likely the last people to join the party in stocks, so by the time they join it's a peak. The same way, couch potatoes (typically people with jobs) are the last to hear of things like flipping houses, so by the time there are lots of tv shows about it, it may be a peak.You are definitely on to something. But I ask: Do you get anything out of House flipping tv shows? Do you watch them at all?

Albert Okagbue · Answer

@Leland Barrow Your comments seem well thought out. Definitely something there. Thanks for sharing. My understanding is that folks should maximize their operation in terms of cash flow from rentals so that if values change they can keep paying the loans. As for flippers, over-leveraging can be catastrophic just like leveraged trading in the stock market. For most of my clients with jobs I suggest staying away from flipping. It looks too easy and that's the problem...

Shanequa J. · Answer

Flipping houses is becoming cool again. There's a lot of flip shows on TV. All of them are pure garbage. HGTV has a new one called First time flippers that's similar to The Property Ladder.

Leland Barrow · Answer

For me The best preparation is to be prepared to buy. I think investing now is fine as long as people are not over leveraging. If the housing market corrects then there will be a drop in demand, over supply, and over leveraged properties will default. When everyone else is selling that is the time to buy. When everyone else is buying then that is the time to sell. Now is a great time to sell properties that are over performing and take that equity out so that it can be reinvested in a correction. When the news is talking about everyone buying real estate as an investment tool then it is a sell market if you are using that strategy. The stock market is terrible for some investors right now. We are heading into an election year with D Trump as a candidate. If he gets elected stocks will temp go crazy at the thought of a business man of his acumen becoming President. If I had to guess, after that settles real estate will correct. The short flurry of investing after the elections will be a great time to move money around. Anyone that moves to a SDIRA or SOLO401K right now is probably going to miss a huge spike in investment value. Wait until the peak after the elections and move funds to prepare to buy RE. All the money that has been flooding RE will start chasing stocks. Take my advice for what it is, lame advice.

Albert Okagbue · Answer

@Leland Barrow Thanks for that succinct, yet smart explanation.How are you preparing for that correction in your area? Can you please let us know if you see it (or anything else)? Thanks.

Leland Barrow · Answer

I think you have to pay attention to it. Is the housing market growing with the economy or is it outpacing the economy? In my opinion it is outpacing. From my limited knowledge perspective if a market is not growing at the same pace as the economy then it will likely have a correction. I think we are getting closer to that correction.