Do you think extending the FHA anti-flipping waiver will benefit homebuyers?
- No. (57%, 121 Votes)
- Yes. (43%, 90 Votes)
Total Voters: 211
The Federal Housing Administration (FHA) has extended its anti-flipping waiver through 2013. Investors and the FHA Commissioner believe this is a positive move for the housing market.
Flippers renovate and move otherwise vacant, deteriorating properties, which negatively impact whole neighborhoods. Rather than drawing responsible buyers, neglected properties are magnets for vandalism, becoming neighborhood eyesores and potential hosts for criminal activity.
On the other hand, allowing homebuyers to obtain financing with the low FHA down payment requirement of 3.5% also stimulates the housing market by supplying more available buyers to purchase these properties from flippers.
The FHA is trying to mitigate the often negative financial impact of allowing buyers to flip properties by enforcing the following requirements:
- all transactions must be arm’s length;
- all sellers must have legal title to the property; and
- when the listing price is 20% greater than the price paid by the investor:
- an FHA-approved appraiser must conduct a second appraisal of the property; and
- an independent inspection report must be conducted.
first tuesday insight
If the FHA’s goal is to smooth the path to homeownership, feeding the population of flippers is the wrong way to go about it.
Flippers are already snatching properties out of buyer-occupants’ hands. An excess of flippers heightens competition among buyers, giving rise to bidding wars and cries of insufficient inventory, inevitably creating price destabilization. Flippers don’t need any more encouragement to sandwich themselves between sellers and buyer-occupants.
The FHA’s extension of their anti-flipping waiver delivers no benefit to buyer-occupants. Instead, it raises homeownership out of their reach by inflating home prices. High flipper/speculator involvement artificially increases prices and creates an illusion of demand.
The FHA no doubt hopes artificial demand will give the housing market a jump start and spark real demand among buyer-occupants. Unfortunately, current speculator involvement inhibits buyer-occupants. Flippers either outbid or pay cash to elbow buyer-occupants out of the way.
Buyers react in one of two ways. They either:
- offer to purchase at inflated prices in an exasperated attempt to outbid flippers; or
- simply give up and wait for their cash-heavy competition to abate.
Related article:
Prolonging the anti-flipping waiver does not serve homeowners. It forces them to the sidelines while encouraging the already-domineering big boys from out of town to play harder.
Re: “FHA extends loan support for houses that investors buy, repair and sell quickly” from The Washington Post
WOW – I can’t believe Mr Cain got Comment of the Week with ridiculous statements with nothing to back it up! Why don’t you name these commjnities around the country that are suffering from “rental nightmares”? Why don’t you outline for us the facts and details behind your statement that there are no background checks for criminal behavior? Which, by the way, is AGAINST THE LAW ! And finally some proof, please, for the utterly dumb statement that flippers are causing the demise of neighborhoods and cities across the land and causing an increase in crime. And Brian’s outrageous AND unsubstantiated statement that “most homes that go to sale right now are being bought by large private equity companies” has absolutely no basis in fact, none. Boy, I hope you two are better real estate salepersons than logicians.
First Tuesday has a stance that “flipping is BAD BAD BAD”. Why don’t we first define what a “flipper” is? You can’t buy and “flip” in less than 90 days in most cases, so the old definition of “flipping” in an ultra-short time frame has been dealt with already. So are we lumping “rehabbers” into the “flipper” definition? As Greg said above, rehabbers are purchasing unlendable properties, spending time and effort and money improving them, and then putting them back on the open market. The property is now available for FHA, VA and other types of loans, where before it was not going to pass muster with the appraiser or the lender. Yes, a rehabber will make some money for his efforts– but these aren’t Habitat for Humanity projects. In the process, the rehabber has employed tile installers, cabinet makers, framers, demo crews, gardeners, roofers, etc. Then, the end result is an improved property that sells for more, raising the price/comps of the neighborhood.
Tell me again, First Tuesday, how this puts the fate of the entire housing market in peril?
And the remark above that became your quote of the week, pure dribble! No landlord wants a troublesome tenant that destroys the property, commits crimes and needs to be evicted.
You should aim your guns at the banks and lending institutions for a while– how come we’ve never seen one of your exposes on the true return of FDIC insured mortgage in a short sale default? (Lender gets 70% of ALL past due debt, including inflated housing price, back due payments, etc, PLUS the asset in foreclosure –the house).
Flippers DO NOT care about the neighborhood – and out of town investors usually don’t either. We’ve seen our own community, and communities around the country fall into “rental nightmares” due to ill-managed rentals. They move in anyone that breathes and has money up front – no background check for criminal behavior, and very little other screening. This destroys neighborhoods, cities and has increased the crime all over the nation.
Every person commenting above added very interesting information and their particular viewpoint on flipping. It is true that flipping mania can drive a market higher, but when analyzing that more deeply, is that a good thing? California was one of the “hot spots” for rapidly rising home prices for that very reason in the early 2000’s.
Indeed, the market moved, as stated by some of you above. Indeed home prices rose, as some of you stated above. Indeed, agents made money, as some of you stated above.
What was the result of all that? Does anyone remember 2008 and the financial crisis? That was CAUSED by a housing market out of control—greedy bankers, greedy brokers, and greedy buyers wanting to make a quick buck, plus greedy sellers collecting fast cash.
I was active at the time in a state that did NOT see the flipping mania like California had. Prices there stayed very stable. Appraisers made sure prices were kept in line at traditional levels for the region. And, guess what? The carnage was no where near as dramatic as in California flip world. In fact, there was very little. In 2008 home prices were not much different than in 2001 there, and foreclosure rates relatively low.
So, if you want carnage, let the flipping begin. If you want greedy bankers to begin salivating again turn of the flip switch.
If you want hoardes of agents who don’t know up from down entering the business to compete with you, let the flippers rush in.
Now, to hear the rest of you speak, it seems you want a repeat of history. Well, you may get exactly that! But this time around the results could be much worse. But, you don’t really care do you—as long as you profit.
Housing is a commodity, and Government shouldn’t attempt to play God in deciding who gets to buy it. Do the terms Equal Protection and Equal Rights sound even vaguely familiar to the First Tuesday “insight” writers?
Is flipping good or bad? It’s good for some and bad for others. As everything else is also. Why are first-time-buyers more worthy than investors?
I for one would let the market decide!
As a Realtor and buyer of a couple of properties myself….I can say that speculators absolutley DO help buyers/homeowners. Speculators DRIVE the market. In driving the market they DO help market cycles begin, They put a sense of a timeline or “market season” to the whole process. They make buyers get up and do their own work of buying. Speculators also let buyer know when to STOP buying by their own activity. Last but most certainly not least….speculators by driving the market are the ones that help us make the GAINS we do with our purchases. Whether that be in 5 yrs or 40 yrs…..we see more gain than we would it it were only driven by buyers.
And all of this is what is caled supply and demand of the OPEN MARKETPLACE. Speculators have every right to do what they do…..the public might get a bit jealous because they don’t sit and wait like homeowners wait for 30 yrs to make their profit.
Don’t be afraid of the speculators….they are GOOD for the market.
The second paragraph of the article spell out exactly why flipping works for communities and owner occupants and should not be constrained by arbitrary timelines. What the article neglects to explain is that buyers that the FHA would like to help can not purchase those same properties, prior to renovation by flippers, due usually to non compliant FHA conditions negating any possibility of financing. The article also indicated that buyers often have to offer inflated prices to their detriment. If financed, an appraisal keeps the lid on what a buyer can afford. The reality is that paying over market is normal in a market in short supply and exactly what needs to happen if our deflated housing market is to return a normal supply of homes and steady prices.
Flippers are putting properties back on the market allowing agents to sell properties. Most don’t realize but most homes that go to sale right now are being bought by large private equity companies that will sit on the properties for years to come as rentals. This doesn’t help people buy a home or get agents back to work. Do a little fact checking on what’s really going on before you publish an article about people who not only sell homes, but create jobs and income for people in the real estate and construction industry.
We heartily agree with the conclusions of First Tuesday on this issue. The most important duty of any realtor specializing in residential housing, in our opinion, is to serve the needs of individuals and families in need of a place to live.
All other purposes, while admissible, should take their places behind adequately housing persons in need of a place to live.
As currently structured, and as First Tuesday points out, live-in buyers are being bumped out by the arrangements now favoring the cash buyer investor or flipper. Live-in buyers are being railroaded into paying a higher than asking-price if they want the property.
We feel that does not serve the primary purpose of why agents specializing in residential properties are licensed and in business, nor does it serve the overall welfare of our great nation, as it inhibits individuals and families who need housing from securing it, thereby adding to the destabilization effect of flipping.