Not the Time to Get Greedy: House Flippers Getting Burned by US Housing Downturn

The alternative, admitting it was obvious to everyone paying attention, would point the finger at the responsible parties (everywhere) who either initiated it, sustained it, or profited from it. Which is a great many people in the financial industry.

Why self flaggate when you can pretend it was a surprise instead?

I genuinely don't get this. Everyone older than 30 or so saw the writing on the wall... hey, this is 2006-2008 all over again.

Why so many people, even institutions, kept arguing otherwise baffles me. It's like CNN telling us to stick a fork in a light socket, their experts are sure it won't shock us this time.

Because in "downturns" the wealthy accumulate more wealth. Since there is still stuff they don't own yet, it's time to have another downturn. Just a small/short one though, as they don't want to be too greedy. That's just rude.

Maybe the author is not old enough to remember 2006-7?

That line jumped out at me as well.

Hell, a lot of this got called out before Covid really picked up steam. No one knew exactly what it would look like, but they knew it was coming.

These people were just playing chairs and thought they wouldn't get caught standing when the music stopped.

"the timing" is the only thing to talk about; saying "The economy will, at some point in the future, contract." is not in any way an interesting statement.

So yeah, when they say "it's a story few could have foreseen" they are definitely talking about the timing.

Agreed. At the very minimum the interest rates rising should have been a strong warning.

All time high prices and rising interest rates for new loans should tell everything. If you have even basic understanding how average people are estimated for their capacity of taking loans.

The exact same thing happened 15 years ago.

Buying a home during covid was a sound financial decision. Interest rates for a new home were ~2% which are INSANELY good and well below inflation.

Great advice but for many, that's the entire problem: waiting for either rent, RE or both markets to drop to a point they can save.

The lower classes are often still priced out of low budget living.

If I had to guess: home inspectors.

I think it's a psychological quirk related to loss aversion[0]. Essentially, we view a house as belonging to the owner the moment the ink dries on the mortgage papers and losing a house is objectively a painful thing. Most people don't see the other side: people like me who never owned a home to begin with. I've likely missed out on 100's of thousands in gains by not buying homes with low fixed rates in 2008-2020, but nobody writes sob stories about that. The prevailing narrative is that all the gains from the crazy housing market belong (in some just sense) to the people who happened to buy at the right time.

[0] https://en.wikipedia.org/wiki/Loss_aversion

According to most media outlets:

Rising house prices = good

Rising food prices = bad

But both are necessities for life.

> A place to live and throw a ball around with your kids should not be out of reach for average people on an open market, prices are distorted and if the forces causing the distortion don't get fixed there will be a crisis.

One of the major forces that causes inflation in the market for single family homes is the broadly held desire for "A place to live and throw a ball around with your kids".

This is especially the case in cities that saw huge price increases during the pandemic and now are seeing major price declines as demand dries up.

The medicine, however much it may be needed, is being delivered by making the very people who have the aforementioned desire less able to purchase because of higher rates. It will be a great opportunity for all or mostly-cash buyers, though.

It's a bit more complicated though, interest rates are part of that function too.

Low prices & low interest rates: great for new entries to homeownership, but would require a surplus of housing Low prices & high interest rates: great for those who buy property with cash (wealthy people and corporations) High prices & low interest rates: great for existing owners High prices & high interest rates: generally bad for everyone except those able to offload existing housing thy own

It's because for many Americans their house is by far their largest asset. For some it's their only meaningful asset and basically is their net worth. A decline in housing prices is a decline in wealth.

Now I am not saying that is a good thing, quite the opposite. Many many problems stem from this reality. But that's where the fear comes from, and fear gets clicks and eyeballs.

It is because fear sells, frame it as a bad thing and you get more clicks, anyone else complaining about it being the fault of capitalism or blame it on the NIMBYs or whatever just have an axe to grind.

I agree on a personal level as someone hoping to buy a home at a reasonable price in the near future, but you have to remember that most of the wealth of middle America is in the form of real estate. Sure, it's good that we're undoing excess, but that process will be painful for the economy as wealth effects are removed. It is a bad thing in the short term, even if it is better in the long term.

In capitalism, growth is the only meaningful metric. Housing has now been commercialized, too, after all.

The lumber commodities prices are close to historical trend.

https://www.nasdaq.com/market-activity/commodities/lbs

And also, don't look to get into furniture making where the (previously affordable) good looking, high-quality, easy-to-work-with material is 97% imported from... Russia. Baltic birch plywood, I barely knew ye.

Seriously, though. We had a deck designed for me to build (I absolutely can build it, but I have no idea how to actually lay it out). We've been sitting on it since COVID, because the price of materials has been just astoundingly high. What was $1200 in early 2020 is now $2800-$3200. I just cannot justify that cost. I'm praying this stuff comes down soon, I want my deck damnit.

if you glue them all together, it becomes a glulam! Though...a glulam made of knotty, warped, and chipped pine might not be structural.

I bought some 2x4 at the big box home center yesterday and I was both pleasantly surprised by the cost and the fact 50% of them were straight. Normally I have to pick through the pile to find the maybe 1 in 10 that are acceptable.

I disagree with some of your second statement. I'm pretty handy and my dad is a carpenter. My significant other sand I spent almost a year and a half looking for a "fixer-upper" homes with the intent to buy and fix and live. For that entire year and a half almost every time we found a home that wasn't a complete trainwreck, someone would come in (sometimes from out of state) pay cash sight unseen and they would get the home. Considering this was going to be our first home, we couldn't compete.

A few months later, we would see the same home back on the market, with a significant markup and basically some light tile work, and a coat of paint. Not really worth the "fee" IMO.

Further, most of the "flipped" homes we looked at were absolutely done by DIYers. Not to knock people who have the drive to do it, but the work was absolutely not to professional standards and not worth the price listed.

So to say that buyers are free to buy fixers-uppers isn't completely true, nor fair.

> Buyers are all free to buy fixer-uppers.

If the flippers haven't grabbed them already. They've got an information and time advantage over normal folks looking to buy a house.

They are rent-seeking with the information asymmetry created by the real estate cartel in this country. Many of the flippers do barely any 'fixing up' besides manipulative adds to increase the houses prices over the cost of the improvement. In a perfect information system, that shouldn't be possible. But the real estate industry locks down the information in order to justify insane fees for selling homes.

Flippers, like scalpers, are scumbags who manipulate a market w limited supply. Flippers are worse in a lot of ways because instead of not being able to afford a concert, people can't afford a place to live.

The problem happens when the flippers are betting on home appreciation for the vast majority of their returns, instead of home improvements.

Eh, at least flippers put the houses back in circulation. I have a much larger issue with institutions buying homes en masse to rent.

The Fed has historically been extremely reluctant to lower rates. The actions 2008 onwards were a massive historical aberration. One that was proven fairly correct when you compare the US's macros relative to Europe's, where the ECB did not take as aggressive measures.

One could argue that they should not have kept interest rates low in the 2nd half of the 2010s, but it was those low interest rates that has allowed the Fed to rapidly increase rates and yet barely touch historically average rates.

Anyone willing to pay a lot of money to sit in a hotel ballroom to listen to someone tell you how to get rich in real estate definitely qualifies here.

A nicer way of saying that is that it draws in people who are good at working with their hands, but aren’t as good at understanding the Fed and the economy.

I know better than to buy a house in early 2022, but I don’t have the skill to profitably improve a home, either.

Everyone's an expert

Underrated comment..

Care to elaborate on the 'path dependency' part? What quantity isn't conserved here? (honest question)