Is California real estate in the midst of a speculator-driven bubble?

  • Yes (77%, 189 Votes)
  • No (23%, 56 Votes)

Total Voters: 245

They’re baaaaack!

Real estate speculators, also known as flippers, played a central role in the inflation and ultimate implosion of the housing bubble in 2006. Now, after nearly seven consecutive years of falling and soft prices, the flippers have returned, looking to make quick profits in a real estate market that is perceived to be on fire once again.

While flippers are joining the fray nationwide, their presence is especially apparent in California, according to the Wall Street Journal.

As of April 2013, prices have risen over 25% compared to one year earlier in San Jose, San Francisco and Sacramento. Prices increased 18% over the same period in Los Angeles.

These gains, second only to those seen during the Millennium Boom, are likely due to the work of flippers. How so? The number of homes bought and resold within six months has reached the highest level since its peak in late 2005. About 6,000 homes have been flipped so far this year as of April, which says nothing of the number of homes purchased but yet to be resold by flippers since we started seeing real price gains earlier this year.

Related article:

April home sales increase — will it continue

first tuesday insight

Someone once said: History always repeats itself twice.The first time as tragedy, the second as farce.

The rapid acceleration of real estate deals and price inflation propelled by flippers from 2000 to 2006 ended in the tragedy of the housing market crash and ultimately the 2008 financial crisis. Now it appears history is repeating itself again, with flippers coming on the scene and driving the market into another bubble. This time, however, the whole scenario is a farce, since the only folks participating in frenzy are the speculators themselves — at least that’s the case for now.

Enduser, owner-occupants simply do not have the cash to compete with well-heeled flippers. Of course, they didn’t have the cash in the 2000s either; they had easy money funded by risk-blind lenders who were originating to distribute like it was going out of style.

It’s the lack of available purchase-assist financing that will keep this mini bubble from ballooning into a full-blown Hindenburg. Rather than resulting in another global financial crisis, this over-heated market will cool slowly as the speculators realize there is insufficient real demand in the market to provide the ultimate profit on the flip side.

In the meantime, many flippers will rent their newly renovated (or “spruced-up”) assets to the millions of dispossessed former homeowners seeking shelter in California. With the new glut of rental supply on the market, rents are already falling. The likely scenario is that home prices will soon fall as well from their current peaks, leaving many flippers holding on to shadows.

Related article:

The speculator’s predicament: a likely scenario

Re: “Flippers ride housing wave” from the Wall Street Journal