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Economy , US Markets

Flipping Out Over Real Estate… Again

A reminder of the days before the housing bust more than a decade ago

by Bob Stokes
Updated: June 27, 2019

Quite a few people quit their jobs in the late 1990s to day trade stocks -- just in time for the big bear market that kicked off in the year 2000.

But, by 2003, animal spirits had returned -- and this time, many people turned to another way to get rich quick: house flipping.

The May 2003 Elliott Wave Financial Forecast took note and said:

Glowing proclamations about real estate's future include a slew of books on using "real estate to get rich quick." A recent issue of the Detroit Free Press reviewed eight different titles on "Flipping Properties," "Real Estate Loopholes" "Value Investing in Real Estate," and so on... Real estate is in for a historic wipeout.

Real estate mania did continue for a time. But, as you know, a big bust followed the 2006 high in U.S. home prices.

Lesson learned? Hardly.

House flippers are at it again. Take a look at this chart from our June Elliott Wave Financial Forecast, which said:


The chart shows the percentage of homes being flipped, which means they were bought and sold within a year. In the first quarter of 2018, the percentage rose to 11.1%, slightly higher than the prior record high of 11% in the first quarters of 2005 and 2006. Home prices peaked in the second quarter of 2006. A slightly lower high of 10.6% came in the fourth quarter of 2018, so the profile of flipping extremes appears similar to that of 2006.

As Bloomberg reported on May 9, softness in the real estate market is already taking its toll:

Young Real Estate Flippers Get Their First Taste of Losing

After piling in when the market was hot, investors are facing losses from homes that take too long to sell.

And, it's not only flippers who are having a tough time.

At the high end -- the very high end -- the price was just cut for America's most expensive home (New York Post, June 25)

The Los Angeles property dubbed Chartwell had a cool $50 million chopped from its asking price on Monday, taking its price tag down to $195 million from the whopping $245 million it was asking when it officially hit the market in October.

Yes, Chartwell is the home that was used in the 1960s show, The Beverly Hillbillies.

And, don't count on overseas buyers to rescue U.S. real estate (Quartz, June 25):

Chinese buyers are pulling out of New York real estate in droves

Is another real estate bust just around the corner? One way to get the answer is to look at the current Elliott wave picture in the stock market, because real estate and stocks tend to trend together.

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