Chart of the day: The Semaphore of House Flippers

November 23, 2010

by Scott Sambucci

10 comments

Meet Bob.  Bob is a local housing investor.  Some people like to call Bob a “flipper.” And what should we know about Bob?  Bob owned 5-6 homes at a time and made tons-o-cash in 2004, then not-so-much by 2008.  Bob is really, really good at signaling the turning tide of the housing market – he practices semaphore just for fun.  Bob got busy again in 2009, but more importantly, Bob is about to get not-so-busy again.  And if you’re in the housing market, you should watch what Bob is telling you.

A couple weeks ago, I wrote that house-flipping in Las Vegas seemed to be re-emerging. In many ways, that’s a good thing – it means that local investors (guys like Bob) with local knowledge see demand for resales and refurbished REOs.  This helps repair the market.

Digging into the data some more, turns out this trend is now decidedly slowing as Q4 wears on.  And worse, this is a consistent trend across the country signaling weakness ahead for the general market rolling into 2011.

But, notice how the percentage of listings with price increases (“flips” – right axis) is starting to head lower as price reductions move higher after the tax credit expired (left axis).

Right axis: Active Listings with a Price Reduction in the last 90 days. Left axis: Listings with a Price Increase (flips) in the last 90 days

Price reductions are a real-time indicator of demand – sellers reducing their asking price signals market weakness and lower future transaction prices. The end of the 2009-10 stimulus plus macroeconomic pressure is clearly impacting the market to the negative.

For posterity, I checked out the data in a very different market – Chicago – a highly seasonal market that’s remained weak during the recent period of stability. The trend is the same:

Right axis: Active Listings with a Price Reduction in the last 90 days. Left axis: Listings with a Price Increase (flips) in the last 90 days

More markets exhibiting an eerily similar trend:

Right axis: Active Listings with a Price Reduction in the last 90 days. Left axis: Listings with a Price Increase (flips) in the last 90 days

Right axis: Active Listings with a Price Reduction in the last 90 days. Left axis: Listings with a Price Increase (flips) in the last 90 days

The lesson from Bob? Grab your life raft.  Women, children, and self-professed data geeks first.

(And BTW – “Bob” is actually Keanu Reeves, who may or may not in fact be flipping houses.  He hasn’t been too busy since The Matrix, so maybe he is…  Image from BuzzFeed.)

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