House Flipping in South L.A.: That's So Right!

Like many parts of the nation, but especially here in Southern California, the neighborhood known as South Los Angeles is pockmarked with foreclosed properties, the result of aggressive subprime lending. But unlike some other parts of town, house flipping just may save South L.A. from what would otherwise be a bleak destiny.

As the Los Angeles Timesproclaims, "Flipping houses is back in South Los Angeles," citing figures from MDA DataQuick, which showed that at least three different South L.A. zip codes were among the top in Southern California for frequency of flipped homes, defined as houses resold "within three weeks to six months of purchase."

And, says the paper, the MDA statistics reveal that in the Watts section of South L.A., "1 out of every 6 homes during the final three months of 2009 was flipped." That makes Watts the de facto flip capital of all of Southern California!
Why is South L.A. so apparently attractive to real estate investors?

The Times quotes one investor as saying South L.A. is a good place to flip homes because it is a "blue-collar" area near a lot of work--factories and such. It is also fairly close to downtown Los Angeles.

Another factor appears to be something South Los Angeles does not have an oversupply of, according to the paper: overbuilding from previous years.

Only a few weeks ago,Business Week asked the question, "Is the return of house flippers a good sign?"

The conclusion, in general, was yes.

Flipping is returning, you see, not only to South Los Angeles, but to other areas that were hard hit by the subprime mortgage-caused housing market collapse. Places such as Phoenix.

According to the magazine, for 2009, the number of foreclosed homes that flipped within six months of being purchased in that city had jumped a whopping 81 percent from the previous year, based on figures computed by RealtyTrac.

Unlike during the housing bubble, when flippers gained a bad rep for their speculation and for helping drive up the price of real estate beyond any measure of reality, this time flippers are seen as people who are "stabilizing" whole areas.

In fact, even the federal government seems to now see the merits of house flipping: As of this past February, the Federal Housing Administration issued a one-year waiver of its previous anti-flipping regulation.

"We do believe investors will play an important role in today's marketplace because they tend to be more liquid than first-time home buyers," Vicki Bott, an official with the Housing & Urban Development Department in D.C., tells Business Week.

The truth is, of course, it is far too early to tell whether the return of the house flipper is a good or bad thing: As with many things in life, moderation will be the key. In moderation, house flipping probably will be a positive influence for many neighborhoods.

But real estate investors in the past few years have often proven themselves to be anything but moderates. Taken to an extreme, house flipping could just lead us right back where we started from.

Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think, The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.
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