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Sunday, October 20, 2013 11:10 AM

"Bubblicious" High End Flipping Up 350%, Overall Flipping Down 13%

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Flipping houses went out of fashion around 2008, along with flip phones and sub-prime mortgages. But real estate data shows the practice is on the upswing — among million-dollar homes.

At the low end, where flipping might actually make some economic sense, flipping is down.

MarketWatch reports House flipping makes a comeback

For the market as a whole, flips of single family homes fell 13% in the third quarter, according to new research from RealtyTrac, with investors earning a gross profit of nearly $55,000 on each property. But at the higher end of the market, homes seem to flip as quickly as a griddle full of hamburgers. Flipping increased 34% among homes worth $750,000 and over, 42% among $1 to $2 million houses, and 350% for properties worth between $2 and $5 million.

Flipping tends to be most common in cities with a large supply of expensive homes. (To qualify as a flip, a home must be purchased and subsequently sold again within six months.) In fact, more than three-quarters of all high-end flipping took place in five markets: The New York metro area and Los Angeles, San Francisco, San Jose and San Diego.

What’s behind these quick turnarounds? “Flipping happens when prices are rising rapidly even if price levels are low,” says Jed Kolko, chief economist for real-estate firm Trulia.

It’s possible to double the value of a home, says Jeff Salgado, a San Francisco-based realtor. Investors could buy a dilapidated home for $1.2 million, invest $600,000 and sell it for $2.4 million, he says. “Our buying community is driven by the biotech and high tech sectors. These people are brilliant at what they do, but a good portion of them don’t know the difference between a screwdriver and a hammer.”

When asked to comment, Bernanke replied "It's not a bubble, it's bubblicious". Well ... not quite.

But signs of a bubble are all over the place. And just as in 2000 with the dotcom bust, and 2007 with the real estate bust, the Fed is 100% oblivious of massive bubbles now.

Alternatively, the Fed harbors a "We Just Don't Care" attitude, hoping employment picks up before the stock market, corporate bond market, and housing bubbles burst.

Regardless, bubbles never end well (except for bank executives and corporate insiders who cash out stock options and sell every share on the way up).

Mike "Mish" Shedlock

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