Are Flippers Negatively Impacting the Real Estate Market?

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Rising prices are fueling the practice of house flipping, which have some worried about another inflated housing bubble. However, others argue that flippers have a positive impact on the market, creating beneficial transactions for agents and fixing homes in disrepair which increases the overall value of the neighborhood.

In California, homes bought and resold within six months have hit a record high since 2005. Approximately 6000 homes have been flipped in the state this year through April, accounting for more than 5% of all homes sold statewide.

Six of the largest ten price gains in major U.S. cities have been in California. In April, San Jose, San Francisco, and Sacramento all saw home values rise by 25% from the previous year. Los Angeles prices rose by 18%.

Prices are rising because of the shorter supply of homes for sale. Homeowners seem to be holding out for higher prices. Classic economics: A decrease in supply leads to an increase in price, all else held constant.

Today’s flippers are financially stronger than they were from 2003 to 2006. Banks are not making loans to buyers without large down payments. Investors are also buying up “fixer” homes, revamping neglected properties that would-be homeowners might not have the patience or cash for otherwise.

Flippers argue they are doing their part to create better living spaces for future homeowners, but critics argue they are taking advantage of the low supply of homes in the market.

Is the business of flipping homes negatively impacting the real estate market or improving opportunities and properties for agents and homeowners? Share your thoughts in the comment box below.

Find out more on WSJ.com from Nick Timiraos.