The flippers are out roaming the Southern California freeways in luxurious SUV fashion with Bluetooth fully activated. Funny how quickly things can change. Last week I was browsing the late night talk shows and who shows up? One of those reality show flippers from SoCal! I believe the moratorium on flipping homes is now out the window and now we are back on the housing mania bandwagon. Acceleration in flipping activity is a clear sign of a housing market that is overheating. For flipping to occur on a large scale, you need an overall rising market. Flipping completely depends on selling homes for higher and higher prices. That is the entire point of investing time and energy into a project that you will turn around and sell quickly. This is why it is fascinating to see the kind of prices some flippers are now demanding in the market. Yet the market is now seeing some signs of cooling after a two year run. Today we’ll look at a flip in Arcadia.
There has been a distinct momentum shift that has come from two major events in the mortgage markets. The first had to do with FHA insured loans becoming incredibly expensive even though these products are targeted as options for working families. As if a working class family is really in the market for a $729,750 property (the FHA max in high priced markets). That is one event. The second larger event has to do with the Fed hinting at a QE taper which sent the mortgage markets into a tizzy. This has definitely tempered the nearly unrelenting real estate mania that has been gripping the country. Incredibly, even after the quick turnaround in prices 14 percent of US homeowners with a mortgage are still underwater. Banks have leveraged a low supply market coupled with selective disposal of properties to their advantage. However, with inventory now rising thanks to the quick turnaround you are seeing some brakes being applied to this market.
The housing mania is in full swing here in Southern California. A headline reads “record yr/yr gain for median price†in reference to Southern California. Keep in mind that only a few short years ago we had the biggest housing bubble ever pop in spectacular Hollywood fashion. Well the bubble is back. Not the same kind but a newly evolved real estate fever. The players are different this time. In the previous bubble, the easy money came from duped global investors and a NINJA loan market while today, the Fed is basically giving out free money to large banks to leverage in the real estate market. The gig is now only accessible to a small portion of the population in prime markets. Those with good credit and a desperate desire to buy are jumping in as the thunderous momentum rolls along. Largely because of investors, renting has become a more popular option. There is now something in the air. Over the last year, I’ve heard many times that “housing is the best investment†and “the Fed will never let housing prices go down again!â€Â The emergence of low down payment loans outside of FHA insured loans is now coming back in fashion since household incomes are simply not keeping up. Where do we go from here?
Renting is in vogue. Regardless of the rhetoric, we have added over 1 million renting households since the housing bubble burst in epic fashion while losing home owners. What is interesting in spite of the rapid rise in home values is that many more households are becoming renters. Part of this dynamic is occurring because of a dramatic amount of purchases going to investors seeking to become landlords but also, we have 5 million people that have lost their homes to foreclosure and may now opt to go the renting way. The nation is becoming much more comfortable with renting a variety of items including cars (ZipCar), locations for brief trips (AirBnB), and of course housing. It is also the case that a large part of our nation is having a tough time financially and job security is definitely not what it used to be so people are opting for more mobility. It is a fascinating reversal that reflects a change in economics and also a drive by investors leveraging low rates to chase yields in unlikely markets. Is this a temporary trend of something more permanent?
Subscribe to feed
