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Your Tuesday Morning Dose of Doom & Gloom

July 23rd, 2013 - 9:31 am

Sustainability:

Flip That House, along with other US reality television programmes about investors who bought properties to revamp and sell for a quick buck, went dark when the housing market crashed. But now bargain hunters looking to make a profit, and the cameras that follow them, are back.

Low interest rates, a slowly improving jobs market and greater consumer confidence have spurred more Americans to buy houses. Rapidly depleting inventories of homes for sale and surging prices have created a sweet spot for house flippers – those who buy and sell the same home within six months.

Sorry, did I say “sustainability?” I meant to say, “reinflate that bubble so we can prove right that old definition of insanity.”

There was a throwaway line in Heinlein’s The Moon is a Harsh Mistress that made me laugh hard enough that it’s been stuck in my head these last 30 years. Something about two Chinese merchants growing rich, selling rocks to one another.

Flipping houses is pretty much just that, only a house of course has more intrinsic value than an ordinary rock. But just because it has value, doesn’t mean it’s necessarily worth the price paid for it. So what is any given house worth? We don’t have any way of knowing, because the Fed is doing all it can to reinflate the bubble (ie, artificially raise prices), while banks continue to mask the real size of our foreclosure problem. But it’s safe to say the fair-market value of any given house is probably closer to the 2008-09 bottom, than it is to today. It might even be quite a bit lower than the bottom, given that the market was never allowed to actually find its bottom.

Because Washington, of course, couldn’t find its bottom with both hands.

Heh.

But there’s a more serious problem here, too: A house is not a productive asset. That is, it doesn’t generate new wealth, and as any homeowner can tell you, it tends to generate big new expenses. A productive asset is one that does generate new wealth, such as a profitable business or machine tools. What Bernanke has done — and Greenspan before him — is to move capital away from investments in productive assets and into housing.

And we wonder what’s happened to our productivity? Instead of producing new industries, we’re flipping houses. And as a result, a generation is stuck flipping burgers. They’ve been priced out of fulltime work by ObamaCare, and they’ve been priced out of affordable homes by the Fed.

So who, exactly, is going to keep buying to keep this bubble inflated? The next generation can’t afford it, and the Boomers are going to start dying. Reminds me of the story told about Joe Kennedy, right before the stock market crash of 1929. His shoeshine boy asked him if he had any stock tips, and old Joe supposedly called his broker right away and told him to sell everything. The reason? If the shoeshine boy was trading, there was nobody left to sell up to.

That’s where we’re headed again, this time as farce.

Comments are closed.

All Comments   (8)
All Comments   (8)
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C'mon, Mr. Green. DC does know how to find the bottom with it's hands.

Ask any strip joint in DC, and they'll give you a straight answer.
1 year ago
1 year ago Link To Comment
Pretty sure that book was also the coming out party for
'There is no such thing as a free lunch'
1 year ago
1 year ago Link To Comment
Now that Obamacare has scared employers out of the business of providing insurance for employees by cutting the hours they work to 30 or less per week, I wonder how many more will be unable to find two or three part time jobs, enabling them to continue the mortgage payments and buy the inflated Obamacare, and pay the rise in taxes in it? I see another housing crash coming soon.
1 year ago
1 year ago Link To Comment
House flipping in CA is not done with an inspector in mind. Should replace/update electric - Copper plumbing and new drains to the street- Insulation and new windows all require city inspectons. Chain immigration now allows 3 generations of people who have never seen a flush toilet to come in, buy up houses and put all the cousins, uncles and papa to
work merging their talents. Their other cousins at work in the banking industry see to it they get the loans. Never buy a refurb in California! Buy instead
the solid old houses that have seen many an earth tremor, hire the experts and get the darned things inspected all along the way. Always remember the avocado stove and refrigerator .... do not do dumb stuff that will date what you do today, tomorrow.
1 year ago
1 year ago Link To Comment

Originally, house-flipping made sense and added value. There was a LOT of sub-par housing stock available in high-growth areas, as the WW2 generation moved into nursing homes. That generation (in my experience) viewed housing as more of a consumable than an asset, so there were a lot of houses from the 50's and 60's that had never been updated, although usually they were maintained fairly well. Most people have zero imagination when they're looking at an empty house--they can't see the potential, they just see what is there.

So, you could go in, re-do the floors, fix up the kitchen, gut the baths, slap some paint up that wasn't salmon pink and make a good profit. Hard work, but the pay was alright and we were really adding some value; Raising the value of old houses kept nice neighborhoods nice, and the meth labs out.

Then the prices went crazy, and all of a sudden you didn't have to add any value in order to get rich. When the baby boomers started to retire, we sold everything and I haven't lifted a paintbrush since then.

In some areas, rents are high enough that I've had thoughts of getting back into the game. But "regime uncertainty" has kept me away.
1 year ago
1 year ago Link To Comment
Mind you, the "Flip your House" people are now going on the road and "recruiting a select group of investors" to flip houses in certain urban areas. I know this, because they advertise on local talk radio.

SOUNDS to me like they're building a pyramid scheme of sorts, not to mention "seminar fees", for-pay "counseling sessions", and, of course, overpriced "Flipping Guidelines and How-tos".

For the relatively inexpensive cost of a few sweetheart deals and a reality TV show. . . . they're creating their own "Amway". . . without the soap, but with all the other stuff that goes with it. . .
1 year ago
1 year ago Link To Comment
"Could dump two Chinee down in one of our maria and they would get rich selling rocks to each other while raising twelve kids. Then a Hindu would sell retail stuff he got from them wholesale-below cost at a fat profit. We got along"

i believe that this is the heinlein quote that you meant.
1 year ago
1 year ago Link To Comment
That's the one!
1 year ago
1 year ago Link To Comment
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