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Friday, September 22, 2006

1 In 5 Flippers Losing Money

By Yaser Anwar, CSC of Equity Investment Ideas

There was a fascinating report from Home Smart today about how flippers are losing money hand over fist.

One out of five flippers who sold a home from April to June of this year lost money on the deal, says Home Smart Reports . That’s the highest ratio of losses in two and a half years.

“In all but four of the last 23 quarters, the flippers who lost money lost a greater amount than the flippers who made money,” says Mike Ela, president of

“We're bombarded with 'Get Rich Through Real Estate' ads and infomercials that promise get-rich-quick opportunities,” Ela says to USA Today. “So much work needs to go into proper research to buy and sell.”

Investors, according to the NAR, purchased one out of every four homes sold last year. They primarily bought in the bubble markets of California, Florida, Arizona, and Nevada, says USA Today.

The paper points out that many flippers are still holding firm on their selling prices, hoping to get out with a profit.

“It's different from the stock markets,” Edward Leamer, director of the UCLA Anderson Forecast, tells USA Today. “When things get bad, there's a mad dash for the door, and prices can drop rapidly. In the home market, the investors, rather than rushing for the door, are holding onto homes imagining the market will turn around.”

But it is getting increasingly hard to do that. For sale signs are popping up everywhere and prices are coming down. Inventories for existing homes rose to a record 7.5 months. The number of new homes for sale reached a record high with 6.5 months of inventory on the market. Builders are offering big incentives to unload inventory. Flippers looking for new properties have dried up, slashing demand.

Leamer tells the paper that the current market reminds him of real estate in the 1980s. When that bubble burst, it took 10 years for the real estate market to come back.

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