Tuesday, September 26, 2006


The flippers that flopped

While hunting for houses I have picked up on what I think are homes that were purchased for the purpose of flipping. Flipping is the purchase of a house, a quick rehab, and putting the house on the market. It has become popular enough to inspire several TV shows with original names like Flip That House and Flip This House.

Both houses are located in the Chicago neighborhood of Beverly, ZIP code 60643. The first house I noticed was priced over $400k at 1647 W. 99th St when I first saw it in the spring. The price started coming down in the spring and was quickly reduced from $369k to its current price of $349k in a matter of weeks where it has been for at least 6 weeks. The reason I think it is a flip is that it closed on 3/18/06 at $242.5k. As you can see from the photos, it is rather empty. So you have a house that was purchased and put on the market in a matter of weeks. It is put on the market much higher price then the price comes down rather quickly. Smells like a flip to me.

My next candidate actually was tipped to me by my mother who was given this piece of information over dinner by one of the ladies in the neighborhood. 10301 S. Leavitt shows up as closed on only two months ago. They bought at $345k and are asking $367.5k. I don't know if this matchs what they put into remodelling or even if there was any rehab. But it seems to me that whoever tried this flip just wants out. Fast.

It seems obvious to me that the first people to blink in the giant game of chicken between home buyers and sellers will be the flippers who are accruing financing costs. The flippers of 10301 S. Leavitt either recognize the market has changed or they are severely under capitalized. I will be watching them closely.

Here is a resident of Houstan's humorous video about flippers who are under water in his city.

This site is a chronicle of flipping disasters in Sacramento.

For people who need to sell a house there is nothing funny about a market in which housing buyers are sitting on their hands. What I think we can learn from watching these type of sellers is when the down market will begin in earnest; which it hasn't yet in Chicago. Also, I think we will get a good sense of the peak in the market and, perhaps, the extent of the bear market in housing. These people bought at the top and they are very motivated sellers. Others who might want to sell for less pressing reasons will hold out longer, and probably sell at lower prices. When these flippers find buyers you should mark those prices and the percentage declines as a ceiling. I doubt that prices will reach those levels for many years.


Aug. new home sales came in much stronger than expected while durable goods orders came in much weaker than expected. Th news on durable goods in consistent with a weakening economy and the higher new home sales figure seems to have been driven by falling prices.

That glut of homes for sale helped push median price of a new home in August to $237,000, which was down 1.3 percent from the price level a year earlier. A National Association of Realtors report Monday said the price of existing home sales in August fell from year-earlier levels, the first year-over-year decline in that key price measure in more than 11 years. But new home sales prices have had some months when it posted a year-over-year decline recently. [Emphasis added.]

So price declines have started. Now we get to see how far this will go, how much lower prices will decrease the record number of housing inventory.


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