One of the hallmarks of the mid-2000s housing bubble was the widespread popularity of house flipping. From TV shows such as Flip This House to seminars devoted to teaching people how to flip houses, house flipping entered the mainstream. With cheap credit available through the banking system and real estate prices rising continuously, the idea was that anyone could make money buying cheap houses, redoing their interiors, and selling them for a tidy profit.
Many house flippers were caught completely unaware by the sudden turn in the market that began in 2006 and 2007, and by 2009 many unlucky would-be flippers were underwater on their mortgages. With major collapses in real estate markets nationwide, many who had dollar signs in their eyes when they started flipping houses ended up having to file for bankruptcy.
But many people never learned their lesson, and house flipping remained incredibly popular. TV again led the way, with shows such as Fixer Upper and Flip or Flop becoming incredibly popular once real estate markets began to rebound.
But while home flipping remains profitable, both sales and profits are declining. Overall flipping numbers are declining year on year, while profits are at their lowest level since 2011. More concerning is that the amount of financed (i.e. mortgaged) properties is at its highest levels since 2006.
That’s an indicator that more and more ordinary people are trying to get involved in house flipping, possibly influenced by the TV shows they watch. They’re unaware of trends in real estate markets and have no real experience, they just want to get rich quick. Unlike the professional flippers who can often pay cash for their houses, these newbies have to borrow money to get into the action. And that could come back to bite them.
With the economy set to slip into recession, housing prices are likely to fall. That could trip up a number of erstwhile flippers and bring them some serious financial pain. Those who failed to learn the lessons of 2008 could end up suffering dearly.