One of the highlights of the mid-2000s housing bubble was the large amount of house flipping that went on. Housing prices were rising so high so fast that many amateur investors and remodelers jumped into the housing market, buying fixer-uppers in the hope of being able to flip them for tens or hundreds of thousands of dollars in quick profits.
That worked for a while, as long as the easy money flowed and banks and mortgage brokers lent money to anyone with a pulse. But once it became clear that many of the new homebuyers weren’t able to afford the payments on the houses they had just purchased, the entire house of cards began to crumble. Many house flippers were burned, left holding portfolios of houses that were dropping in value and that they themselves couldn’t afford to make payments on either.
You would think that many people would have learned their lesson from that experience, but apparently not. House flipping remains popular for many investors today, and is more popular today than it has been for years, accounting for nearly 7% of all US home sales. While that’s short of the all-time high of 8.2%, it’s still a sizable percentage. And while profit margins are slightly lower than they have been in percentage terms, the average profit for a flipped house is nearly $70,000, higher than it has ever been since the housing bubble. That’s part of the reason that flipping remains so attractive.
Rising housing prices may be starting to put a dent in house flipping activity, but one has to wonder whether rising interest rates may end up slowing house flipping too. And if flipping starts to decrease, it may be chalked up to those factors, rather than to a housing bubble deflating. At any rate, the fact that so many houses are still being flipped should be viewed by wary investors as yet another sign of a bubble economy that may very quickly come crashing back to earth.