Are House Flippers To Blame For The Housing Bubble?

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May 18, 2017

Real home prices rose significantly between 1997 and 2005, cratered between 2005 and 2012, and then surged once again since 2012.

Robert J. Shiller, the Sterling Professor of Economics at Yale and a contributor to the New York Times, argues that opportunistic yet naïve house flippers are to blame for the huge swing in prices.

People got swept up in the narrative of being a savvy investor. They borrowed as much as they could and only focused on the upside of leverage, not the downside.

Investors looked at the success stories of the condo conversion boom in the 1970s and 1980s and read self-help books by various real estate experts.

By now, the notion of getting rich by flipping houses is entrenched. I searched Amazon for books on “flipping houses” and came up with 325 hits, most written in the past few years. Buying and rehabbing existing houses for resale is a legitimate business. But many of these books make extravagant pitches and seem aimed at inspiring amateurs to plunge into risky ventures.

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