Snapping up foreclosures in Silver Lake: The impact of flipping on the Southern California housing market.
This weekend I was reading through the print edition of Bloomberg’s Businessweek magazine. The cover story is titled The Great American Housing Rebound. It is an interesting piece that digs deep into the boom, bust, and now boom of the Arizona real estate market. It is very clear throughout the article that investor money is having a very significant impact on the current housing market. It is well worth a read and simply highlights how low interest rates, investor demand, and very little supply can cause prices to move back up very quickly. We are seeing this here in Southern California especially in niche markets. I’m seeing properties being snapped up as potential flips in areas like Silver Lake where investors buy a place, fix it up, and try to turn around and create a quick flip. You can spot these homes when they hit the market rather quickly.
A flip in the making
This home hit the MLS this weekend:
2152 Clinton St, Los Angeles, CA 90026
Bedrooms: 3 beds
Bathrooms: 1 bath
Single Family: 1,107 sq ft
Lot: 2,874 sq ft
Year Built: 1901
This home is a potential flip given the current list price. Take a look at the price history here:
What is interesting is that this home appears to have some historical foreclosure past. What you realize is that buying is about timing but also paying the right price. This home is listed at $400,000 and with 3 bedroom and 1,107 square feet in Silver Lake I don’t think this home is going to sit on the market for too long. It looks like some work was done as well:
The median price for the 90026 zip code is $620,000. Last month 14 homes sold in this area. It looks like 42 properties are listed in the MLS for this zip code putting current supply at 3 months. In more stable markets the amount of supply usually would equal six months or higher. This trend is not only unique to California however:
Nationwide the supply of homes is down to about four months. The big drop in inventory started in 2011. This property is worth tracking over the next few months. At $400,000 I can even see some of the Wall Street hedge funds eating this place up as a rental. Take a look at what another 3 bedroom rental is going for in this area:
Good luck if you are a family trying to buy this place merely as a single family home. You are going to have some fierce competition on your hands. Something tells me this place is going to sell for more than $400,000. It tells you something when you can spot easy investment properties nearly on the same day they hit the MLS. I know some readers are set on buying in this area so I would be curious if you attempt to make a bid on this property.
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54 Responses to “Snapping up foreclosures in Silver Lake: The impact of flipping on the Southern California housing market.”
Another interesting facet to the market I’m now seeing is the return of the For Sale By Owner (FSBO). Most non-distressed sales have been suppressed over the last few years by lowered home values – owners either underwater and unable to sell or above water but in no hurry to sell at a reduced price. Now it seems that prices have rebounded just enough to pull some organic sales out of the woodwork. No surprise then that FSBOs are some of the first to re-appear, as owners presumably now marginally able to afford a sale now try to maximize every last cent by avoiding realtor fees.
That makes a lot of sense to me and hopefully FSBO will gain some more traction as a result.
It’s high time that more sellers and buyers begin to cut realtors out of the equation.
What is wrong with flippers? They fix up a home and sell it higher. This impacts the surrounding properties and increases their price. In Burbank, couple lots down this happened. God bless the flippers. If the prices it high enough, I may sell my English Tudor.
In general the problem with flippers is the moral hazard that they introduce into the market by making a quick buck off of buyers whom are financing repairs and upgrades at a high markup. They are an implicit cog on the money printing wheel. A financially prudent buyer would either have the money saved up to put in the repairs and upgrades at a lower cost or live with the property as is until they’ve saved up enough.
The mere fact that it’s possible to take advantage of a person whom is making a poor financial decision isn’t justification to do so. That sort of behavior is the very gist of why we get into these credit boom bust cycles. To use an analogy, the flippers are the drug pushers and the buyers are the addicts.
It’s one thing to buy a flip with cash or a traditionally sized down payment and quite another to buy one on max leverage. My guess is that the flippers aren’t marketing to the cash market.
This would be a different story if the market conditions were such that there were plenty of “fixers” available, but what we’re finding at present is that flippers seem to be the only ones able to get them. Bringing up the free market would be a straw man because we know this is anything but; rather it’s quite a manipulated market and flippers are in it for rentier profits. Sure, the manufacturers and day laborers are putting some value into the equation, but they’re getting money in exchange and that will make its way into the system so as to devalue bit by bit what we all use.
Joe,
I’m neutral on flippers (don’t love them, don’t hate them).
It’s a free market, and I disagree with your comment. I have not seen any statistical data that supports your point.
“This would be a different story if the market conditions were such that there were plenty of “fixers†available, but what we’re finding at present is that flippers seem to be the only ones able to get them. Bringing up the free market would be a straw man because we know this is anything but; rather it’s quite a manipulated market and flippers are in it for rentier profits.”
@pugtv
How convenient for you to call out the only point of many in the comment that blogs such as this have been exposing as one result of behind the scenes collusion for which data does not get collected.
Until you present some statistics that disprove the claim, I’m keeping my money on what DHB has been putting forward the past few months.
Good luck with your distraction campaign.
The problem with “moral hazard” is how do you define it? When your leaders are corrupt and setting a poor example, is it foolish to play the game by the rules just to be “good”? I don’t advocate everyone going out and being bad because it would lead to chaos but it seems they are boiling the frog in the pot on this one.
Isn’t this how capitalism is supposed to work. If an investor feels the market has underpriced an asset, they are subject/entitled to the risk/reward of their investment. Many of the investors are paying in cash with no possibility of passing off any error in judgement to a third party (ie taxpayers).
It is a completely different matter for those home buyers, flippers and speculators who purchase homes on credit margin. Margin buyers pass their judgment errors onto third parties – resulting in privatized profits and socialized losses.
“The mere fact that it’s possible to take advantage of a person whom is making a poor financial decision isn’t justification to do so.”
With respect, this sounds like nanny-state thinking.
Ironically, your statement is the sort of moral hazard that is anathema to the better workings of capitalism. Caveat emptor and all that…
@dfresh
Perhaps I didn’t state my point clearly enough. I don’t support nanny-state sentiment. There are takers on both ends of the spectrum. It comes down to how comfortable each individual is in regard to their impact on the systems we all participate in.
I think flippers are free to do what they do and the suckers who buy from them justify their role.
Where the rub comes in is when markets are manipulated in order to skew the course of the game to favor a particular outcome rather than relying on the abilities of each player.
That doesn’t fit my definition of a free market.
But then again, many flippers don’t do diddly-squat to fix up a property and sell it for more than it is worth.
Welcome to Bubble #2.0.
Flippers do a lot of cosmetic work, but many times leave the expensive or really pita stuff for the new buyer. We lookd at eye candy homes with 2 yrs roof life left (inspector opinion), bad re-pipes, and other non-eye candy repairs left for the new buyer suckers. We bought a real fixer and did it ourselves, and then moved our stuff in. We lived there and acted as the General Contractor.
FSBO (which we did on our oversized McMansion) is not for the weak at heart. Brokers make life hell for you, even w/ you offering the buyer agent 3%. (You are trapped into it.) We sold only beause a small broker had the right client and was a deent guy. All the franchise brokers used us to sell comps. We used an online MLS service to get into the MLS. NoLo Press has good FSBO books for Ca. Know the laws or else.
My house must be a really unusual case. I bought it as a FSBO 22 years ago with no broker. I don’t even think it was in the MLS – I just saw the sign on the lawn and knocked. I got the house a couple of percent below comps and the sellers saved several percent. In retrospect I probably could have bargained harder and captured a greater fraction of the realtor savings, but it was my first house and my negotiating skills not yet honed. While I don’t believe lightning strikes twice I still occasionally drive through my neighborhoods of interest looking for lawn signs on otherwise unlisted properties…
apolitical scientist
I just read your reply and feedbak. 22 years ago the market wasn’t “as” engineered, and NAR & CAR weren’t as big lobbyist. Good for you taking the smart path. I wish more buyers had your wisdom. The DOJ lawsusit hasn’t done much to curb the corruption, collusion, and just criminal behaviors of the REIC.
The problem with these people are the borderline illegal way in which they acquire the property for the flip. In a true market the house would go to the courthouse auction and people would bid for the house. But now the bank sells it to a friend of the realtor for peanuts since the bank is being constantly bailed out by Bernanke they don’t care what the loss is. The friend of the realtor or bank gets to buy at below market price, pay a contractor to put the cheapest crap “upgrades” in it and then makes a tidy profit. This is called rent-seeking where the slipped is profiting based on who they know, not what the bring to the table in actual value added.
It would be nice to see a DHB article on current market fundamentals, as things have changed.
Fascism – the merger of state and corporate powers. Investment banking, the Fed, GE, et all.
Socialism – private profits, social tax dollar bailouts.
The current market is a direct result of these two definitions and nothing more. The ultimate question then, is “what are the near term, mid term, and long term results?”
You should write it Papanow! You understand what’s going on clearly. I can’t see it ending well probably another bubble burst when the securitized rentals fail for oh so many reasons.
I’m more worried about this “cradle to grave” mentality that prevails today. That means very few have much to much and very many have far too little. Translation – America the slave renter nation with their Obamacare stipend.
Will the people roll over and take it?
@papa. I get what you’re saying but for the love of god please stop with the Obamacare hysteria. While it isn’t a perfect system – and in fact there are as many systems as there are countries – almost all developed nations have some configuration of government run health care. America is out there on its own in the mess that is health insurance. I’ve lived in several countries and the system here is atrocious and unfair and overpriced.
All Obamacare is trying to do – within a hostile environment to good (okay, decent?) ideas – is try to change the fact that America pays the most for their healthcare of any other nation and has very very poor results to show for it. But like most other things in this country a good idea is never given an opportunity to be realized because it gets screamed down as socialist. So it ends up being implemented half-assedly and then in the long run needs more and more money to fix the problem. With more cries of socialism.
But you are right. Man, this country has so many problems. Looking forward to when they aren’t mine anymore!
@ Tapas Volant. I am a doctor. I come from lower middle class roots and put myself through college and medical school, then proceeded to make minimum wage for another 5 years as an intern, resident, and fellow. The entire process takes 13 years for those interested, so if you go straight through you’ll be 31 like me before you actually have a “real” job. In 1999 when I was deciding to be a doctor at 19 years of age, I didn’t sign up for government run healthcare. And what’s going to happen, is that the smart and brightest are no longer going to be doctors, because why would you when everyone else is telling you how much you are worth, how much you can make, and what medications to prescribe. If Obummeridiot wants to socialize healthcare and have me make 1/2 as much, that’s fine, but I’m going to work half as hard and access to medical care is going to plummet which is exactly what Obummeridiot wants. There is already a shortage of doctors and it’s only going to get worse with the aging baby boomer population. People like you that think that government run healthcare is a good thing need to get back to me in 20 years when your seeing a PA for your ruptured aortic aneurysm.
Sorry Papa, disagree with you. It’s JUST fascism
http://www.washingtonsblog.com/2008/09/given-that-the-neocons-are-fascists-is-the-bailout-a-form-of-financial-fascism.html
The big money is creating that sweet spot just above debt slave and just doable rent slave.
It is not a true market when the players consist of:
Buyers
a) getting subsidized, low downpayment, low interest loans courtesy of the government
b) savers faced with a dilema of getting no interest on ther saving for the fifth year
c) investors with boatloads of free money from the same government that buys/guarantees nearly all the mortgages produced in a country of 325 million people
Sellers
a) financial institutions, most designated as TBTF, that are being given nearly free money to sit on inventory
b) sellers with equity – the only true market player – many of whom fear the ZIRP bubble will pop
What can’t go on, won’t. Only about 20% of the players in this farce are using their own chips (and the taxpayer is backing all the other players’ losses but few of their gains.)
The harsh fact is that buyer category c) buys in bulk(hundreds) from banks at steep discount of about 25% without retail buyers even seeing those properties listed. Call that free market.
WE all know how this ended last time… Why do any of you think it will be any different this time? The economy is worse and the FED has more than TRIPLED its balance sheet! This bust will end with the same peopled holding the bag as last time. Tax-payers, Sub-prime (now known as FHA) borrowers and wanna be specuvestors will get burned. Prices will probably end up at or below the 2010 low in both real and adjusted dollars. Goldman Sachs will be toasting to their health in a high rise far above the carnage…
We turned housing into a casino game. That’s the kind of leadership we have. Fast money. Everything fast. No vision of what we need for the future. Make fast money and then get out.
We have leadership which doesn’t care a fig for America — just how to satisfy their desires for more money, more status, more power.
This will lead to civil war if it is not corrected. Inflation (growth) cycles widen the gap between the rich and the poor — but deflation cycles are supposed to diminish that gap again. It is a breathing process. But Ben is trying with all his might and his nearly unlimited resources to keep deflation from happening — a deflation designed to bring prices back down to the grasp of ordinary Americas, without debt slavery.
The ruling class in America will be suprised at some point by the furious rage triggered by the human devastation of policies designed to inflate prices for ever.
Unfortunately, I think you may be right. Inflation policies always lead to trouble. The Fed will argue that there’s no inflation. They never count the things that matter.
We’re reaching a breaking point.
I agree, but the growing population of lower classes are too obese, stoned, unmotivated to riot; lulled into complacency, voting for whomever provides the biggest benefit package for their minimal personal effort and participation; more interested in tattoos, celebrity culture, producing another illegitimate kid. Middle class fearful, shrinking; trying to hold onto what they’ve got. Wealthy insulated by Fed printing press, cronyism, talented attorneys. Youth vote for Cool Factor…I wouldn’t be surprised in my lifetime to see a sitting President who flips off reporters, smokes pot in the Oval Office, invites adult film stars to the White House; perhaps a reality show for the First Family. Just my opinion.
swing to the right and you get religious fanatics,don’t need that!
You’ve just described the film Idiocracy and GWB (flipped off the cameras in studio while prepping for interview segment.
The tax deductions that are allowed to flip or rent a single family home should not
be discontinued. Given the same tax deductions to owner occupied homeowners they will repair the single family homes. There are many multi unit investment that investor can make. Investors should not be in compertion with families and people who want to occupy the home. It makes no sense to cause single family homes to increase more than 1 or 2 % a year. If home prices are rising more than this amount it means that there are too many buyers in the single family home market. This excess demand is brought into the single family home market by the tax code and it should be eliminated. The prices of single family homes must be determined by the families that are planning to live in the homes. They should not have to compete with large corporations or filppers. The higher the prices of housing increases, the higher their wages must go up or people become government dependent. The investing is self-defeating. We are being misguided to damage our own economy by being rewarded with lower taxes to take on more credit to pay for the higher housing prices. We are creating the next financial crisis!
The featured homes appear to be in Echo Park.
Perhaps the state of the ekonomy is not as bad as we think….
34% of all homeowners age 20-24 are free and clear and 30% of all homeowners in US own free and clear. And right here in LA, LA Land 43% of all homeowners have no mortgage.
http://www.latimes.com/business/money/la-fi-mo-free-and-clear-20130111,0,7656199.story
Counterpoint: subprime mortgages were only 2% of the market share in 2007. Implosion of the subprime mortgages largely froze up everything by October 2008 when about 30% to 40% of the subprimes went bad.
no kidding? How’s that possible that many 20-24 yr old homeowners in LA free and clear? I know many in that demographic, the vast majority don’t even own a home and the ones that do are nowhere near being free and clear. Strange!
@ BlaBla the reason it is possible, IMHO is that most of these 20-24 year olds are getting ‘daddy warbucks’ money. IE money from mother and father who are taking advantage of low interest rates and passing off some of their inheritance early to their children, also we have heard in the past that lots of foreigners are coming here to buy homes for their college kids rather than the dormitory option (can you say ‘asian buyers:). A friend of mine is a broker here in LA and sees lots of young people, single or married purchasing homes (all cash or 20% down) with parents or grandparents money.
If you’re already a homeowner in LA at 20-24, you’re probably either incredibly wealthy (self-made $$$) or have wealthy parents.
It’s a bit of a skewed statistic since there aren’t very many homeowners at 20-24. It does show you huge difference in wealth in LA. You have kids just out of diapers that have too much money vs couples with 2 incomes that are barely able to save 3.5%
FWIW, most of the potential buyers of our condo in Chicago were accompanied not only by their parents, but also at times they brought their entire extended families during tours. I remarked to our realtor how bizarre we thought it was, but she said that it was the usual MO for her these days. Additionally, most of the buyers ranged between mid to late 20’s to mid 30’s.
I have to admit that this current run-up is really gotten up to speed in record time. I think as we head in to spring and then summer, we will get a good idea of how robust it really is…..robust being whether or not the retail buyer carries the momentum up, up and away for bubble 2.0.
Does that mean it lasts another 3 to 5 years?
Interesting. But last quarter, the US economy slowed to a crawl and this was before tax increases and cuts. I wonder if this quarter will be worse? But then, with Bubbles ben at the helm-who knows. I give up!!
http://www.zerohedge.com/news/2013-02-26/new-home-sales-seasonal-adjustments-go-full-retard
In my area in Folsom, a few new homes hit the market this week. Overpriced in my opinion. Seems every new listing that comes on the market has a list price of 5% or more over the same comp next door that sold 3 mths ago.
Anyway, I looked up the tax records for these 4 homes. ALL OF THEM were foreclosed in 2012. The latest one in June. So they have been bank owned for more than 7 months and they are just now coming to sell?
Market manipulation by the banks? Leak ’em out one at a time?
The ‘problem’ is that people feel that they don’t have to honor their mortgage CONTRACT….and when Commiefornia enables that act with non-recourse loans, boom and bust becomes a fact….one house at a time.
I believe loans are non-recourse in CA, because they are supposed to be secured loans. In the past, banks were responsible to only make loans to credit-worthy buyers with 20% down. This gave them the cushion they needed for foreclosure, if the credit-worthy buyer had an extreme bout of bad luck. It’s the banks’ own fault if they took risks greater than they should have taken, so in my opinion, the banks should take the loss.
@Sadie +1
As long as the fed keeps interest rates at near zero for financial institutions, banks can afford to sit on properties indefinitely allowing many not paying their mortgages to live remain rent free allowing the banks to control the supply, therefor increasing the demand. The rise in housing prices is compounded by this lack of supply as well as low interest on investments elsewhere fuelled by the skyrocketing housing prices.
For everyone that thinks this is bubble 2.0, thinks again.
What is different?
2. The first housing bubble collapse was stared by a run on the banks – some say Russia, china, George soros, Libya our some other huge financial institutions or any combination of these and then became worse as prices plummeted and wall street was heavily invested in crashing homes values. confident was lost and investors wanted out of stocks which represented much of the homes, an easy liquidation for a stock holder.
what has changed?
1. The fed has created zero interest rates so banks can now rest on a huge housing inventory and make money from rising home values instead of processing loans and pushing the inventory on wall street.
2. the fed is buying US debt which they can use to stabilize any future run on the banks
3 homes are not being purchased via the stock market, and so overnight liquidation is not possible
3. with low interest rates, investment buyers are currently seeing great returns on home purchases and this will compound on itself driving prices even higher
4. Investors are looking for long term rental investments this time around as well.
5. house flipping continues to be a popular money maker
6. the fed has been printing money and devaluing the dollar which increases home values
7. welfare continues to rise – can you say “pet stamps” which frees money for the lower income to focus on rent and housing which is also subsidized
conclusion:
house prices will continue to rise as long as the fed keeps interest rates low which will be for at least 4 more years or when the string pullers determine that a full collapse will gain them more power/money
Agree with, “or when the string pullers determine that a full collapse will gain them more power/money”. That is the crux of it. And we’re all here trying to figure out when that will be.
Sadie
if a full collapse occurs, which has never happened before, home values will be meaningless amidst the chaos and power grabs.
Yikes…The Bellevue home is in a really awful area and next to a busy FWY. I wouldn’t buy that place if it was $300K. Good luck to any investor who buys it for more, unless they build apartments in its place.
Common Sense:
You went transparent at: “medical care is going to plummet which is exactly what Obummeridiot wants.” The vituperation in this and half of the rest of what you said makes one question your truthfulness in calling yourself a doctor. You actually sound like a typical comments section racist. You also fly in the face of many respected journalistic articles on the viability of other nations medical care vs a vs the US. It’s not the govt taking the money it’s the insurance companies flogging the ponies along.
The house on Clinton Street was indeed a steal, but it wasn’t available to most buyers: it was a HUD house and was only available to teachers, police officers, and firefighters through the HUD’s Good Neighbor Next Door program. My wife is a teacher and we put our name into the lottery, but unfortunately we didn’t win and apparently there were a LOT of people in the lottery which was held this past Friday. I really wish we would have won it! Maybe there is something out there for us eventually…
Also from Bloomberg Businessweek:
He’s the Top U.S. Mortgage Salesman. His Daughter Isn’t Buying It
http://www.businessweek.com/news/2014-07-11/daughter-doesn-t-buy-dad-s-cheerleading-for-u-dot-s-dot-homeownership
“It’s more than the weight of student loans, an iffy job market and tight credit — even those who can buy are hesitant. “
It’s so sad to see this house in this condition with stucco ugh and with that ridiculous price. smh… My grandparents once own the home listed at the top 2152 Clinton street and I have photos if it from the 1950’s and it was a real beauty. Now it’s a mess with a criminal price.
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