![]() ![]() Similar as in their study, we define flips based on the criterion of within-2-year resale, and find that flip returns as well as flip motivations vary across different stages of the housing cycle. It provides statistical analyses on the flipping activities in Las Vegas during 1994 to mid-2007, suggesting that flip homes tend to be older and smaller than non-flip homes, and flippers usually buy the flip home with a discount and sell flip home at a premium as compared to nonflipped similar properties, although the returns vary with different home acquisition stages. There have been very few studies focusing on this topic, one of which is Depken et al. (1) What drive housing flips? (2) How sensitive are such sales to the owner’s financial position and to local housing market conditions? (3) Do flips outperform non-flip sales in terms of price appreciation? (4) What factors affect the realized returns on these transactions? We are interested in four main questions. ![]() Footnote 8 This definition means that about 76% of all transactions in our data are not flips. We define a house flip as a resale occurring within two years of initial property acquisition, further segmenting holding period into less than one year and less than one month. In this paper we examine short-term trades in housing over these three major economic regimes, as are more precisely defined later in the paper. Footnote 7 During the rebound period, inventory was limited and first-time buyers often bid up prices as they competed with investors making all-cash offers. On the other hand, during the crisis period flippers were attracted to REO and short-sale properties Footnote 6 and generate good returns upon resale, especially when initially acquired for all-cash. Buyers could then quickly resell as house prices soared. During the housing bubble before the Great Recession (which we name as “crisis”), when credit was loose, buyers often employed high leverage with low or even zero down payments. Moreover, short-term sales by owner-occupants do not enjoy the capital gains exclusion in taxation if the property is not held for at least two years and do not even qualify for long-term capital gains tax treatment if the holding period is shorter than one year.Īnecdotally, house flipping patterns have varied over both markets and time. In addition, any remodeling cost must be recovered over a relatively short time period. Transaction costs, including brokerage commissions, escrow fees, title work, and sometimes transfer taxes, easily approach 7% of sale price. Short term resales in the housing market are, however, notoriously costly. This is further supported by the later observation that “housing slowdown unnerves the fix-and-flip crowd”, as reported in a WSJ on December 9, 2018, which quotes the words of Daren Blomquist (Senior Vice President at Attom): “The home flippers are a good barometer of where the market is heading…They are involved in such high and quick turnover of properties that they are hyper aware of market conditions”. Footnote 4 Evidently, house flipping has increasingly been viewed as a positive strategy to “seek alpha” in the housing market. ![]() Footnote 3 In addition, a WSJ article on reports that some financial institutions are getting into a “lucrative and growing niche of finance” by providing high-interest, short-term home loans to borrowers to flip houses. Footnote 2 Another WSJ article on Apdiscloses that the real-estate listing company Zillow is entering a “risky and untested business model for the online service” by buying and flipping homes. Footnote 1 An article published on the Wall Street Journal on Octoreports that Goldman Sachs is reaching out to finance house flippers, which “reflects both the buoyancy of the residential real-estate market and the Wall Street firm’s hunger for new profit engines as its core trading business remains stuck in a postcrisis slum”. ![]() I searched Amazon for books on ‘flipping houses’ and came up with 325 hits, most written in the past few years., many of these books make extravagant pitches and seem aimed at inspiring amateurs to plunge into risky ventures”. In an article published on the Economist’s View on May 18, 2017, Nobel Prize laureate Robert Shiller says that “by now, the notion of getting rich by flipping houses is entrenched. ![]()
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