New Orleans No matter how much sugar they put in your coffee, be very prepared to be worried about an additional trend in corporate housing speculation: flipping is back, bad and hard!
In a contradictory, “what me worry,” “how can this be bad” story in the Wall Street Journal the reporter noted that the in the last quarter of last year the level of house flipping, defined as properties owned less than two years before being sold, is up to almost the same level as they were leading into the housing meltdown at 10.6% in 2018 of total sales now compared to 11.3% in 2006. Gulp! The sugar liberally applied then argued that the profits were twice as high on flipping this time around, the flippers were more “professional,” and the homes were averaging ten years older.
I’m still worried, aren’t you? We’re supposed to not be as worried because the margins are better for the pros, because in reporter Laura Kusisto’s florid, superficial and prejudicial analysis, “Flipping has evolved from the days when cocktail waitresses and cabdrivers lined up to purchase lots in new subdivisions in places like Las Vegas and Phoenix.” Her comment is a flashing red light of not only class and geographical bias, but a reveal that the reporter has read virtually nothing about the housing market or the ins-and-outs of the crash, which had nothing to do with cocktail waitresses and cabdrivers.
What panics me about the “new flipping” is exactly what the Journal finds reassuring. Kusisto reports that “Corelogic notes that the flipping market has become more institutionalized. Corporate sellers made up more than 40% of the flippers in the fourth quarter of 2018, the highest level in CoreLogic’s data and nearly three times the share of the market they had during the last boom.” Recent articles even in the Journal have pointed out the emerging force of corporate ownership, including huge private equity and hedge funds, in many markets, and this is now crystal clear evidence of their role in unsettling home markets and jacking prices, which is how profits double. Duh! How can it not be the case that these are profits directly attributable to foreclosures of family homes that were then auctioned off in tranches by Fannie Mae and Freddie Mac to many of these gluttonous operations?
Another clear signal is the fact that ground zero is Memphis, where this kind of corporate ownership has become epidemic. Memphis is now “the second most popular market for flipping…behind only Birmingham.” The Journal underscores a Tennessee-based company called Memphis Invest which is buying “a 1000 properties a year in Tennessee, Texas, Missouri, Arkansas, and Oklahoma,” Their business model is to renovate, rent, and then resell as rental properties to absentee landlords in “expensive markets” like the Bay Area “who can’t afford to buy a home where they live and want an investment property instead.”
What new hell is this?!? How can we not be worried to the bone about a business model that corporatizes homes into rental units for inexperienced, absentee landlords, forced to jack up the rents on tenants in order to profit from their investment? This won’t end well for families, cities, or anybody other than a couple of greedy companies and a few of their investors. The Journal may be right in saying that this is not the same as what helped trigger the Great Recession. It may be worse.