Friday, June 24, 2005

Flip, Flop?

Flippers are speculators who buy a house, or condominium, with no intention of living in it.
Instead, they gamble that prices will continue their steep rise allowing the flippers to sell in a matter of months and make a substantial profit. One website even boasts of the earning potential of buying and selling houses before they're even built! These activities are a part of the housing crisis. People who actually want to LIVE in that housing are the victims. The flippers are profiting off those who are simply seeking to fulfil a basic human need — housing. The Associated Press said in this article published June 20:
"Three percent of home buyers sell in a year or less, according to a survey by the National Association of Realtors. (That's the national average.)

While a vacant house can be a turnoff to house hunters, buying and quickly unloading a house to make a profit can help drive up prices.

Speculative activity, surging home prices and renewed interest in risky mortgages such as interest-only loans are all byproducts of the booming housing market.

(Federal Reserve Chairman Alan) Greenspan said it appears unlikely that a national housing bubble will develop and pop, sending prices tumbling. At the same time, he said, "There do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels."

House prices nationwide rose 12.5 percent over the 12 months ending March 31, according to figures compiled by the Office of Federal Housing Enterprise Oversight. "

So what's a homebuyer to do? So many people deny that this is a housing bubble, and perhaps they're right. Certainly we're not in the same situation we were in the late 1980s when an oversupply of housing flooded the market and outpaced demand. So where's all this demand coming from as prices go higher and higher? I have to wonder whether it's due in large part to continued speculation, people who pulled their money out of the stock market and have been putting it in land in the hopes of selling at a profit. Such a situation was highlighted in a Canadian report that quoted Benjamin Tal, senior economist at CIBC World Markets, about that country's hot housing market. Tal said there are three signs of an impending bubble pop, any one of which could signal such a situation. The first is a dramatic rise in interest rates. The second is the oversupply matter.
A third sign is the amount of speculation in the market, marked by people buying houses to "flip" with a quick resale rather than to live in. In the housing bubble of 1989 - which ended with a crash - there was a significant amount, Tal said, with 25 to 30 per cent of home sales being speculative.

To make all of this sting more, government officials from the fed on down to the local city council, appear to be doing nothing. Why? because public officials are usually home owners. They have theirs. They don't feel the pain. In fact, they feel the benefits of rising housing values. What motivates them to do anything about housing prices? It would be political suicide considering that most voters are property owners who might not take a liking to a candidate that deflated their equity.