www.shaproperty.com

Oct 2, 2007

Flipping homes in the US - it's a flop

NEW YORK - MS SHERRILL Zenie said all she wanted was a piece of the American Dream. But what she got was 'a kick in the rear'.

Ms Zenie is one of a legion of a relatively new type of home owner, a flipper, who sought fast money by rapidly buying and selling homes to capture a profit on each as prices soared.

Speculators who bought multiple homes like Ms Zenie were once a boon to the United States economy when they pushed home prices to record levels over a five-year period.

Now their unsold homes are the bane of a sickly housing market.

Many are stuck with unoccupied properties they cannot sell and mortgages that are bigger than the appraised value of the home, a situation known as being 'upside down'.

The glut of unsold homes comes as lenders are making it harder for borrowers to get loans, causing defaults to escalate and home prices to decline further.

'Investors that initially purchased a property with no money down or a very low down payment could now find themselves upside down, and without prospects of selling the property soon, may opt to just walk away,' says Mr Greg McBride, senior financial analyst, Bankrate in North Palm Beach, Florida.

The Federal Reserve's half percentage point interest rate cut will do more to stimulate inflation than to slice long-term mortgage rates, providing scant relief, some economists say.

'Nobody is looking, either to rent or to buy,' says Ms Zenie, 60, of Delray Beach, Florida, who is stuck with two unsold condominiums there after profitably selling two others.

She owns the condominiums outright, as well as her own home, part of a vacation home in Vermont.

But taxes, maintenance and a home equity credit line cost over US$2,000 (S$2,982) a month for the two condominiums alone, a stretch for Ms Zenie, who is out of work on disability.

'I wanted to follow the American Dream,' she says. 'I wanted to be an entrepreneur and make some money - not a killing, but some money.'

Her husband has found a job in another state to help pay the bills.

'Am I panicking? I would be hysterical if my husband weren't in Mississippi working.'

Said Mr Barry Habib, chief executive of Mortgage Market Guide: 'That's the American way. Speculators add jet fuel both on the way up and on the way down.

'Nobody was saying 'hey, the speculators were bad' on the way up, when people were selling their homes and making lots more money.'

REUTERS

Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access