Wednesday, December 9, 2009

WSJ: House Flipping Making a Comeback

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Good news folks; one of the foundations of economic prosperity in the 2000s - manufacturing products other countries want house flipping -  is making a comeback as trillions of free money is borrowed / printed, and thrown into the system.  It's amazing how "resilient" the economy is when you trash future generations with a few trillion of extra liabilities.

Combined with near (or above) record Wall Street bonuses and you'd think this was 2006.  Kudos to Ben Bernanke... he is succeeding on his master plan.  No need to actual produce things of value - simply increase the money supply, let people flip (a) paper stock certificates or (b) real estate... and we all feel richer.   Nirvana returns.

Via WSJ
  • Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion
  • During the housing boom, millions of Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and curtailed lending.
  • Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions.  Investors compete mostly with other full-time professionals who monitor foreclosure auctions at county courthouses across the country. The bidders often haven't had a chance to inspect the property (who needs to actually see a propery to flip during a boom? no one - there are only winners when money is free.  Heck people were bidding on Phoenix or Las Vegas property in 2006 sight unseen, from other states ...) or determine whether it's occupied by tenants, who may be hard to evict.
  • Flippers swoop in at public auctions of foreclosed homes, known as trustee or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due. But in today's market, in which many home values have dropped far below the loan balance, lenders wouldn't attract investors if they set the minimum at that level.
  • So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession.
  • Sean O'Toole, chief executive officer of ForeclosureRadar.com, a research firm, estimates that in November about 21% of homes sold in trustee sales in California went to investors rather than to a foreclosing lender, up from 6% a year earlier. The trend is similar in some other areas with high foreclosure rates, including Phoenix and Miami.  (i.e. 20% of all home sales in high foreclosure areas are essentially going to non home owners.  Boom!  America is back baby.)
  • The advantage of such an outcome for the bank is that it gets money for the property right away, even if it isn't enough to cover the loan balance due. The bank doesn't need to make repairs to the home, cover the taxes and insurance, or pay real-estate-agent commissions.
Cursory anecdotal story
  • Jon Mirmelli, a Phoenix real-estate investor, learned late in the morning of Sept. 28 that a never-occupied custom house on the northern fringes of this Phoenix suburb was going up for auction around noon the same day. The six-bedroom home, built on a three-acre desert plot, has a kitchen with two dishwashers, four ovens, "antibacterial" copper sinks, and a master "spa" bathroom with space for a flat-screen TV visible from the tub.
  • The minimum bid, as set by a unit of Citigroup Inc., which had a $1.3 million mortgage on the home, was $379,900. After several minutes of bidding among investors and their representatives, some wearing shorts and flip-flops, Mr. Mirmelli won the home for $486,300. A week later, he agreed to sell it for $690,000 to a woman who moved in this month.  (ah, what a productive boon to society - multiply this by hundreds of thousands, perhaps millions of transactions - and the increase to GDP must be overwhelming)
  • The Scottsdale property bought by Mr. Mirmelli was supposed to be the dream home for Brad and Michelle McCaughey and their three children. Mr. McCaughey, who grew up in Ann Arbor, Mich., was a minor-league hockey player and coach after graduating from the University of Michigan. About nine years ago, having moved to Phoenix, he says he discovered "a passion for real estate." He became a real-estate agent and began investing with his father and brothers-in-law in rental properties. Soon they had a dozen homes.  (the circle of life... from 1 generation of home flippers to another)
More
  • People who attend trustee sales here and in other foreclosure hot spots around the nation say the auctions have recently been attracting more bidders. (can you feel the fever building?) "Properties are getting bid up," says Hal Feinberg, a Phoenix property investor. "You can still get good deals, but you've got to be more patient than you were a year ago." He and other investors in the Phoenix area say they have been flipping a lot of the homes they buy to Canadians taking advantage of a weak U.S. dollar.

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