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Not the Time to Get Greedy: House Flippers Getting Burned by US Housing Downturn
- happyopossum 4y ago> It’s a story few could have foreseen It's been a while since I've read a sentence that ignorant in financial news. Everyone saw this coming - we all just disagreed on the timing.
- Ekaros 4y agoAll 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.
- Finnucane 4y agoMaybe the author is not old enough to remember 2006-7?
- scottshea 4y agoAgreed. At the very minimum the interest rates rising should have been a strong warning.
- chrismarlow9 4y agoIsn't it kind of the entire point of raising the interest rate? How could they say nobody saw this coming. The people in charge of fiscal policy literally said "we are going to do this"
- silisili 4y agoI 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.
- buscoquadnary 4y agoIt's the same reason they told us inflation wasn't happening, and then it was transitory, then it was because of Putin, now it is actually a good thing. They have no respect for you or your intelligence and they want you to feel scared. The goal of propaganda is not to convert you to anything it is simply to convince you that you are alone, so that you won't have the courage to point out the emporer is wearing no clothes.
- asdajksah2123 4y ago> It's the same reason they told us inflation wasn't happening, and then it was transitory, then it was because of Putin, now it is actually a good thing. Who is "they" here? Because this is a very strange timeline/explanation of inflation and bears very little resemblance to what people who matter were actually saying. The only part that Central banks really got wrong was that inflation that was originally driven by pandemic driven supply chain issues would be transitory. And they openly admitted they were wrong and course corrected very rapidly.
- buscoquadnary 4y ago> Who is "they" here? The immortal Mesopotamian space lizards obviously. I love the part of the game where we all pretend then that we didn't actually see what we saw and that the reality we saw wasn't real. Like when everyone said that "no one ever said masks are ineffective", or "the vaccine will be the end of the pandemic " my personal favorite was "2 weeks to slow the grow", the only one better than that was "when we said Russia hacked the election we only ever meant that people in Russia also supported Donald Trump we never meant anything ridiculous by that". Although who can forget the iconic "firey but mostly peaceful protests" that consumed large swathes of America.
- unethical_ban 4y agoPlease, link to a paper of record that said the 2016 accusations were related to actual hacking of machines. Violence in 2020 protests was limited to several cities but people who live in BFE saw Jesse Watters tell them about the end of the empire. CDC recommended against masks early on and I resent that for it being incorrect info even if they were doing it for a net good. But also because it gives conspiracy theorist lie-mongers oxygen.
- lazide 4y agoThe 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?
- z3c0 4y agoExactly. For me, this article trending on HN is a pretty good signal that the bags have finally been passed, and the "keeping buying" narrative is no longer necessary or lucrative.
- lazide 4y agoYup. I imagine most of the key stakeholder/editorial approvers have already taken up some kind of short position, or at least exited any of their positions that require an up and to the right trajectory quite awhile ago.
- matai_kolila 4y ago"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.
- conductr 4y agoI sold a house in late 2020 hoping to beat the RE crash only to see it appreciate about 40% or more in 2021. It’s been a weird ride this time.
- asdajksah2123 4y agoThe exact same thing happened 15 years ago.
- foogazi 4y agoTotally different scenarios
- dylan604 4y agoBecause 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.
- P5fRxh5kUvp2th 4y agoThat 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.
- elevenoh 4y ago
- paulpauper 4y agoThis shows the dangers of leverage and path dependency.
- elevenoh 4y ago
- geertj 4y agoCare to elaborate on the 'path dependency' part? What quantity isn't conserved here? (honest question)
- _ea1k 4y agoPerhaps its a hint at our economic structure being built on an assumption of steadily rising home prices? And the somewhat dire consequences of exceptions leading to sharp policy changes to resume the "norm"? I could see that as a form of path dependency. Past decisions about our economic framework end up having an outsized effect on today's policy.
- nmhancoc 4y agoI think this refers to leverage introducing a risk of ruin with volatility where it wouldn’t otherwise exist. If you’re unlevered and have a long time horizon, volatility essentially doesn’t matter. All that matters in the long term is the annual rate of return. If you’re levered, however, a sufficiently volatile underlying will cause you to get liquidated which sets your return to zero.
- deleted 4y ago[deleted]
- thorncorona 4y agoWho could have guessed selling shoddy quality homes and relying on people to waive their inspections was not a recipe for success.
- Forge36 4y agoIf I had to guess: home inspectors.
- buscoquadnary 4y agoAnd the other shoe drops. I'll have little sympathy for those who were busy buying their second house in 5 years by being heavily leveraged in order to squeeze exorbitant rent rates out of those, while I was being looked down in for not getting involved because I chose to pay down my other debts rather than accumulating more. Here's some sound financial advice, spend less than you earn, set money aside for a rainy day and try to avoid unreasonable debt.
- thorncorona 4y agoBuying 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.
- toomuchtodo 4y agoIt’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep. First folks up on the block in the new macro who will set the declining comps are the ones who must sell.
- Ancalagon 4y agoThe idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. So unless you absolutely need the cash out of that second home, should have zero reason to sell ever.
- toomuchtodo 4y agoIt works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you. I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.
- betwixthewires 4y agoWhy do these people always frame a reduction in housing prices as a bad thing and a turnaround to upward price pressure as a good thing? This housing market has been crazy for over a decade and progressively so, a cool down is much needed and IMO the only way to avoid future collapse. 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.
- substation13 4y agoAccording to most media outlets: Rising house prices = good Rising food prices = bad But both are necessities for life.
- SketchySeaBeast 4y agoBecause there aren't generations of people betting their retirements on nachos.
- standardUser 4y agoMaybe they shouldn't be doing it on houses, either.
- ddoolin 4y agoIn capitalism, growth is the only meaningful metric. Housing has now been commercialized, too, after all.
- ethanbond 4y agoRapidly rising housing prices is a sign of impeded growth.
- buscoquadnary 4y agoIt 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.
- foobarian 4y agoIf the rate of fix-and-flip transactions slows maybe I will finally be able to get affordable lumber again! Otherwise I guess I can learn to build with 1x2 furring strips... <sigh>
- abakker 4y agoif you glue them all together, it becomes a glulam! Though...a glulam made of knotty, warped, and chipped pine might not be structural.
- foobarian 4y agoI'll say that so far they have been perfectly fine for utility projects I would normally use 2x4 lumber for, like storage shelving. With some care in designing the structure I actually prefer them since they are lighter. Finally when the rough rounded edges are ripped off they even look somewhat nice.
- Loughla 4y agoSeriously, 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.
- tomcam 4y agoYou might want to reconsider. Having a year or two of deck time is pretty awesome. I went ahead and paid inflated prices and never looked back. Fresh air and a great view have pretty much replaced trips to the cinema for me.
- pkaye 4y agoThe lumber commodities prices are close to historical trend. https://www.nasdaq.com/market-activity/commodities/lbs https://www.nasdaq.com/market-activity/commodities/lbs
- prottog 4y agoReal estate always draws in the dumbest forms of entrepreneurs.
- hatware 4y agoEveryone's an expert
- 1123581321 4y agoA 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.
- dylan604 4y agoAnyone 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.
- tradertef 4y agoUnderrated comment..
- nostromo 4y agoPeople like to hate on flippers, but they provide a service that the market chooses to pay for. Buyers are all free to buy fixer-uppers. Most choose not to and instead look for move-in-ready homes. Flippers provide that service for a fee.
- ceejayoz 4y ago> 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.
- abfan1127 4y agowhere do they get the information ahead of everyone else?
- ceejayoz 4y agoSomeone doing a lot of flipping is likely to cultivate a relationship with realtors, government officials, etc. in their area.
- dylan604 4y agoAll of those signs out there that say "We buy homes for cash" that are linked to a flipper gets them some info. Otherwise, they actively send out mailers as junk mail to see if there's any interested parties willing to sell their house. They also tend to watch foreclosure auctions much more closely than your average home buyer. There's many many ways an interested party can learn advantages over your common house hunter.
- deleted 4y ago[deleted]
- ThaDood 4y agoI 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.
- bluedino 4y agoEveryone that bought this summer...yikes. The place across the road from us sold for $315,000 two years ago. At 3.5% that's $1,512/month They put it up for sale last week for $499,999. At 7.25% that's $3,271/month, over double. Even if the price was the same it'd be $2,100.
- thunky 4y agoI would not be surprised if the Fed oversteers in both directions, and rates start coming back down as fast as they went up. If that happens, this could all be another pump fake downturn that heads right back up. Especially since the labor market is more than fine and this correction seem to be purely due to lever pulling vs actual market dynamics. I think there's a long way to go until the excess gets cleared out. Maybe not a long way down, but a long time period with poor returns to put things back in balance.
- asdajksah2123 4y agoThe 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.
- thunky 4y ago> The actions 2008 onwards were a massive historical aberration Just like the time right before that, when Greenspan cut rates and kept them low fueling another major asset bubble. It's almost like that's the new normal. > allowed the Fed to rapidly increase rates and yet barely touch historically average rates If only someone could get a loan using the historical average rate.
- GoldenMonkey 4y agoThe problem is... timing... we've had a 12 year bull cycle. Why should we expect this un-ending growth forever. And the typical 1-2 year recession, is way overdue. The housing market was already contracting months ago... once interest rates started ticking up. And now at ~7% mortgage rates... housing prices are going to go dramatically down. Mortgage rates were ~3%, just 10 months ago... that means payments are double at this point. And sadly, we have seen this cycle repeat so many times at this point. Feds put the brakes on the economy and housing sinks. 2008-2009 was classic.
- IanDrake 4y ago
- stillbourne 4y agoSomeone please thing about the gamblers! Investment comes with risk. I don't mean to come off as sounding heartless but house flippers are part of the reason we have a booming homeless population. Taking a cheap home, renovating it and banking the delta might get your some extra dosh in the pocket but it also makes homes more often out or reach for lower and middle income buyers.
- unethical_ban 4y agoEh, at least flippers put the houses back in circulation. I have a much larger issue with institutions buying homes en masse to rent.
- WirelessGigabit 4y agoGood. Fuck them. Remember that they do the absolute minimal to extract as much money as possible. Get an older house not flipped with a decent kitchen.