A Decade After The Bubble Burst, House Flipping Is On The Rise House flipping is at an 11-year high in the U.S. New research shows borrowers with good credit like flippers, and not subprime borrowers, were mainly responsible for the crash. Is another bust coming?
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A Decade After The Bubble Burst, House Flipping Is On The Rise

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A Decade After The Bubble Burst, House Flipping Is On The Rise

A Decade After The Bubble Burst, House Flipping Is On The Rise

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(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #1: If so, we have an amazing opportunity for you. We're looking for a small group of motivated individuals to join our real estate investing team.

ARI SHAPIRO, HOST:

A couple of months ago, this ad started running in heavy rotation on commercial radio stations here in Washington, D.C.

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UNIDENTIFIED PERSON #1: Where you can learn how to make a lot of money flipping homes.

SHAPIRO: Flipping homes - buy, renovate, sell, make money. I decided to call the number in the ad.

Could you just tell me what this program is?

UNIDENTIFIED PERSON #2: OK, this program is a free two-hour workshop where we're going to be teaching you how to get started flipping houses right there in your local area by utilizing other people's money to finance your own deals.

SHAPIRO: And these kinds of workshops are popping up all over the country right now. That's because 10 years after the housing crisis, house flipping has made a big comeback. There are dozens of shows about it made by networks like HGTV or A&E. There's "Beach Flip"...

(SOUNDBITE OF TV SHOW, "BEACH FLIP")

UNIDENTIFIED PERSON #3: We'll renovate these dated waterfront fixer-uppers.

SHAPIRO: ..."Desert Flippers"...

(SOUNDBITE OF TV SHOW, "DESERT FLIPPERS")

LINDSEY BENNETT: In this kind of heat you've got to have a pool.

SHAPIRO: ..."Five Day Flip"...

(SOUNDBITE OF TV SHOW, "FIVE DAY FLIP")

CHERIE BARBER: We've got to have this whole property finished by Friday.

SHAPIRO: ...And "Phoenix Flipped."

(SOUNDBITE OF TV SHOW, "PHOENIX FLIPPED")

ELISHA SANDER: The flipping business is insane.

DELANEY ROTTA: I think this is what, like, Mom used to have in their old house.

SANDER: Dingy, stinky basement.

ROTTA: We buy, sell and renovate homes here in Phoenix.

SHAPIRO: All this year we're looking at what has changed and what hasn't on the 10th anniversary of the financial collapse. Today house flipping is at an 11-year high in the United States. Last time people were flipping this many houses was during the bubble when house prices were increasing by 40 or 50 percent every year in some places. Back then, some flippers weren't even renovating houses. They were just buying and riding the housing bubble to resell for more money until the bubble popped. Phoenix, Ariz., is an important place to look at this.

DAREN BLOMQUIST: Phoenix is definitely a bellwether.

SHAPIRO: Daren Blomquist is with a company called ATTOM Data Solutions. They collect real estate filings from all over the U.S. and put the information into a database so people can look for patterns nationally and locally. He defines flipping as reselling a house after less than a year.

BLOMQUIST: For the year 2017, Phoenix had over 8,500 single-family homes that were flipped. And that's the most of any metro area that we analyzed nationwide, which - we looked at 174 metro areas.

SHAPIRO: So I went to see what's happening and look at whether we should worry about old bad habits returning along with the flippers.

We've just climbed to the top of Camelback Mountain, which is about 2,000 feet over the city of Phoenix. And we can see the sprawl stretching out in every direction. And it's dense with single-family homes. So there aren't a lot of high-rises. There aren't a lot of apartment buildings. There aren't a lot of opportunities to put more people in the central part of the city, which is where people want to live right now. And that's one of the incentives for so many people to remodel and flip homes.

LAUREN ROSIN: So this was actually a courtyard. And I blew it out, expanded the roof. And that's going to be a beautiful, large kitchen.

SHAPIRO: When I climbed down the mountain, I met a couple of house flippers in a partially rehabbed home in an upscale neighborhood full of yucca plants and saguaro cactuses. Lauren Rosin and Brad Pickett could easily have their own HGTV show. They look like people who do CrossFit with perfect hair and stylish clothes. And they clearly know their material. They got into real estate during the bubble. So I asked them to explain the difference between what flippers were doing then and now.

BRAD PICKETT: We both used to do loans. And they had a non - no income, no asset loan called a NINA. And literally, if you had above a 700 FICO, you didn't have to prove your income or prove any assets. You could get the loan.

SHAPIRO: Now he buys the houses and she rehabs them. They say it's harder to make money in flipping today. You have to really know what you're doing, and the margins are not as big.

We're in a moment right now where Phoenix real estate prices in some parts of the city are growing 30 percent in a year.

ROSIN: (Sighing).

SHAPIRO: What does that big sigh mean?

ROSIN: It's too fast. I think you're going to see a small adjustment. You're never going to - you're not going to see the crash that we saw again anytime soon. There's many reasons why. I mean, a lot of people have skin in the game right now. A lot of people have equity in their homes.

SHAPIRO: She says before the crash, people bought houses and rented them out while they waited for housing prices to keep climbing. Renting out the houses wasn't the point. The point was to ride the bubble. Some people even lost money on the rental income. So when home prices went down, lots of people just walked away from those mortgages.

ROSIN: And they were like, well, why are we keeping this home? I have nothing to gain from keeping it. So a lot of people threw their hands up in the air.

SHAPIRO: There's new research showing that Lauren Rosin is exactly right. Yes, some of the housing crisis fell on people who bought and lived in a home they couldn't afford. But researchers are just now coming to understand that a big part of the problem was people with better-than-average credit scores who owned multiple homes. These were not subprime buyers. Some of them were landlords. Others were flippers. Stefania Albanesi is an economist at the University of Pittsburgh. She's been studying this.

STEFANIA ALBANESI: These borrowers, you know, looking to buy their second, third and fourth homes would tend to go to nonconventional lenders and would tend to obtain loans through nonstandard products such as adjustable rate mortgages and so on. And so these loans are more expensive. They have higher interest rates. And so other things equal - you know, it's more likely that these borrowers might default.

SHAPIRO: In other words, 10 years ago flippers were part of the problem. And today Brad Pickett says there are so many flippers in the market he has a hard time finding properties to buy.

PICKETT: For example, to get one deal under contract it costs us $6,000 in direct mail. So we've gone on to other things such as voice broadcasting, Press 1 transfers.

SHAPIRO: Oh, wait. You're responsible for the calls I get...

ROSIN: Yes.

SHAPIRO: ...On my cellphone that are like...

ROSIN: Yes.

SHAPIRO: ...Do you want to sell your home? I have an interested buyer on the line. Please hold. That's you?

PICKETT: That might be me, yeah.

ROSIN: That's him. Yeah.

PICKETT: That's - that could probably be me (laughter).

ROSIN: (Unintelligible).

SHAPIRO: Glad I could meet you face to face so that I can tell you how obnoxious that is.

PICKETT: Do you actually have a home for sale?

SHAPIRO: I have a home. It is not for sale.

PICKETT: OK.

ROSIN: Yet. Everything has a price.

SHAPIRO: (Laughter).

PICKETT: Next time, press two.

SHAPIRO: (Laughter) All right.

So flippers contributed to the housing crisis. House flipping is now at an 11-year high. Should people be alarmed? Mark Stapp says probably not. He teaches real estate development at Arizona State University's business school.

MARK STAPP: The issues we had previously with abuse through manipulating appraisals - that really isn't happening.

SHAPIRO: So lenders are being much more cautious than they were 10 years ago.

STAPP: Absolutely they are.

SHAPIRO: But I see these weekend workshops that are like, learn how to flip houses and make tens of thousands of dollars in no time or HGTV shows that make it look like you can do this on a weekend and make an extra income. And I - it sounds like people are getting encouraged to dip a toe in this water who don't know how to swim.

STAPP: And it drives me insane because the number of issues related to this business that affect success are far greater than those TV shows ever express. And they simplify how you deal with them to the point where it's actually dangerous.

SHAPIRO: And that's not creating risk for everyone in the housing market?

STAPP: I think it's such a small number, Ari. I don't think that it is to the point where it so dramatically affects the market that the market gets hurt by it.

SHAPIRO: So if you want to start a side business house flipping in your spare time, the good news is you probably won't decimate the global economy, but no guarantees that you'll turn a profit either.

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