Amid saguaro cactuses and yucca plants, Lauren Rosin shows off a house that she's renovating in Phoenix's Central Corridor, a pricy neighborhood north of downtown.
"This was actually a courtyard and I blew it out," she says, pointing to what will now be an extra-large open kitchen with custom cabinets, quartz countertops and chandelier-style lighting. She'll also upgrade the swimming pool in the backyard.
But Rosin won't live in the four-bedroom, three-bath midcentury ranch once it's finished. She and her business partner Brad Pickett are house flippers: Pickett buys the homes, and Rosin leads a crew of contractors to rehab them. They flipped 27 homes last year.
These days, profits are tight, and they face stiff competition.
That's because a decade after the U.S. housing bubble burst, house flipping is on the rise again. Defined as reselling a house within a year of purchase, flipping is at an 11-year high in the United States and it's the subject of dozens of TV shows and weekend workshops promising to teach real estate novices how to make a fortune.
New research shows that flippers contributed to the housing crash of the mid-2000s more than economists initially realized. Because some of the same practices from the boom are making a comeback, some market watchers are concerned that the real estate market might once again be nearing a bubble.
But for now, experts say those concerns are overblown, thanks to changes in the mortgage industry and other factors.
The last time this many homes were being flipped was during the housing bubble. Flipping peaked in 2005, when 8.2 percent of all single-family homes sold nationwide were flips, about 344,000 homes, according to Attom Data Solutions, a research firm that collects and analyzes nationwide real estate data.
In areas where the bubble was growing fastest, flip rates were even higher. In Las Vegas and some parts of Florida, the flip rate reached nearly 19 percent. In Phoenix, about 16 percent of homes sold were flips.
A look at the market in Phoenix, considered a bellwether by industry experts, is a good way to see how things have changed or not. More than 8,500 homes — or 8.5 percent — sold in the Phoenix metropolitan area last year were flips, more homes than anywhere else in the country, according to Attom.
Before the crash a decade ago, flippers didn't need to do much to make money. Financing was easy to get; people with high credit ratings could use no-income, no-asset loans to buy real estate. The housing bubble was inflating so fast, investors could buy, hold — sometimes renting out the properties to make a bit extra, sometimes renting at a loss, sometimes not even bothering to rent — then sell, over and over again.
Then the floor fell out from under the housing market.
Lauren Rosin got into flipping in 2009, during the bust. In Phoenix, the crash was disastrous. Homes on average lost 56 percent of their value. Lenders foreclosed on tens of thousands of families.
To Rosin, the wave of foreclosures meant that there were thousands of houses on the market that needed only a face-lift to net her a tidy profit.
"It was really sad because you're watching so many friends and family go through losing their homes," she says. "But I just looked at it as such a great opportunity."
Ten years into her career flipping houses, Rosin's operation is much more streamlined and professional. But it's harder to make money now, she says.
Her profit margins are significantly thinner, typically 10 to 15 percent of the eventual sales price. She has to know exactly which amenities will yield more profit and which to skip, and the fine line between upgrading and going overboard.
New research and data suggest that the practices of house flippers fed the bubble of the early 2000s. Much of the blame for the housing crash has fallen on subprime borrowers and people who bought and lived in homes they couldn't afford.
But researchers are now coming to understand that a big part of the problem was people with better-than-average credit scores who owned multiple homes — not subprime buyers, but real estate investors, landlords and flippers.
Stefania Albanesi, an economist at the University of Pittsburgh, argues that the rise in mortgage defaults during the housing crash was mostly attributable to real estate investors, including flippers.
During the bubble, about two-thirds of home flips nationwide were financed with loans, according Attom. In places like Phoenix and Florida, that number approached 80 percent.
The problem with that, Albanesi says, is that real estate investors such as flippers are at greater risk of defaulting on their mortgages than normal homeowners.
"If you lose your home that you're living in, you have to relocate your family, find other housing, and maybe have a longer commute," Albanesi says. "This is not something that's there for the investor. Overall, their default probability is much greater."
Normally, people with above-average credit scores are unlikely to default on their mortgages. But during the crisis, Albanesi's research shows, it was borrowers with good credit scores who had taken out mortgages on additional properties — mostly investors — who defaulted at historically high rates.
"These borrowers looking to buy their second, third and fourth homes would tend to go to unconventional lenders and would tend to obtain loans through nonstandard products such as adjustable-rate mortgages and so on," Albanesi says. "These loans are more expensive. They have higher interest rates. And so, other things equal, it's more likely that these borrowers might default."
Despite the volatility they can bring to a market, flippers can and do bring value. Many homebuyers don't have the energy, resources or know-how to renovate a home that needs it. Flippers can help boost the supply of "move-in ready" homes.
"I don't think there's anything inherently wrong with flipping itself," says Steve Swidler, a finance professor at Auburn University. "In fact, flipping has probably given life to the housing markets that were most hurt back in the financial crisis itself."
Now that the real estate market has stabilized, flippers can't ride the bubble or scoop up foreclosed properties on the cheap. They have to add real value to turn a reliable profit.
At the height of the bubble in Phoenix, the typical flipped home was originally constructed in the mid-1990s, according to Attom. In other words, people were flipping properties that were only about 10 years old.
Now, the average flipped property is typically about 30 years old.
"They're older homes, which inherently are going to require more work," says Daren Blomquist, senior vice president for communications at Attom. "They're going to actually have to improve the conditions of these homes, which I think is healthy for the housing market. Flippers can step in and actually provide inventory of homes that are somewhat 'like new' if they do a good job."
In areas that didn't experience the housing bubble as intensely as places like Phoenix, Las Vegas or Florida, flipping rates have stayed more stable, growing slowly over time instead of swinging wildly from boom to bust.
But as flip rates in cities like Virginia Beach, Va., Baltimore and Birmingham, Ala., near 10 percent, some wonder if there is cause for concern.
Real estate experts in Phoenix, where these risk factors are ahead of national levels, say there's no reason to sound the alarm yet.
During the housing boom, prices were rising so quickly that inexperienced real estate investors could turn a profit despite their lack of expertise, says Mark Stapp, who teaches real estate development at Arizona State University.
"Today, you can't. It's harder," he says. He points to financing and commercial lenders. During the bubble in Phoenix, more than 75 percent of flips were financed with loans. Now, flippers in the area acquire about half their homes with financing, half with cash.
"Commercial lenders have been very disciplined," Stapp says. "The loan-to-value, loan-to-cost, those kind of metrics, they're keeping very low and tight control over. The issues we had previously with abuse through manipulating appraisals, that isn't really happening."
Simply put, Stapp says, though some of those inexperienced flippers are back, they're still too small a portion of the market to worry about.
"I think it's such a small number," he says. "I don't think it's to the point where it so dramatically affects the market that the market gets hurt by it."
Becky Sullivan and Jolie Myers produced and edited the audio story. Maureen Pao produced the story for online.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON #1: If so, we have an amazing opportunity for you. We're looking for a small group of motivated individuals to join our real estate investing team.
ARI SHAPIRO, HOST:
A couple of months ago, this ad started running in heavy rotation on commercial radio stations here in Washington, D.C.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON #1: Where you can learn how to make a lot of money flipping homes.
SHAPIRO: Flipping homes - buy, renovate, sell, make money. I decided to call the number in the ad.
Could you just tell me what this program is?
UNIDENTIFIED PERSON #2: OK, this program is a free two-hour workshop where we're going to be teaching you how to get started flipping houses right there in your local area by utilizing other people's money to finance your own deals.
SHAPIRO: And these kinds of workshops are popping up all over the country right now. That's because 10 years after the housing crisis, house flipping has made a big comeback. There are dozens of shows about it made by networks like HGTV or A&E. There's "Beach Flip"...
(SOUNDBITE OF TV SHOW, "BEACH FLIP")
UNIDENTIFIED PERSON #3: We'll renovate these dated waterfront fixer-uppers.
SHAPIRO: ..."Desert Flippers"...
(SOUNDBITE OF TV SHOW, "DESERT FLIPPERS")
LINDSEY BENNETT: In this kind of heat you've got to have a pool.
SHAPIRO: ..."Five Day Flip"...
(SOUNDBITE OF TV SHOW, "FIVE DAY FLIP")
CHERIE BARBER: We've got to have this whole property finished by Friday.
SHAPIRO: ...And "Phoenix Flipped."
(SOUNDBITE OF TV SHOW, "PHOENIX FLIPPED")
ELISHA SANDER: The flipping business is insane.
DELANEY ROTTA: I think this is what, like, Mom used to have in their old house.
SANDER: Dingy, stinky basement.
ROTTA: We buy, sell and renovate homes here in Phoenix.
SHAPIRO: All this year we're looking at what has changed and what hasn't on the 10th anniversary of the financial collapse. Today house flipping is at an 11-year high in the United States. Last time people were flipping this many houses was during the bubble when house prices were increasing by 40 or 50 percent every year in some places. Back then, some flippers weren't even renovating houses. They were just buying and riding the housing bubble to resell for more money until the bubble popped. Phoenix, Ariz., is an important place to look at this.
DAREN BLOMQUIST: Phoenix is definitely a bellwether.
SHAPIRO: Daren Blomquist is with a company called ATTOM Data Solutions. They collect real estate filings from all over the U.S. and put the information into a database so people can look for patterns nationally and locally. He defines flipping as reselling a house after less than a year.
BLOMQUIST: For the year 2017, Phoenix had over 8,500 single-family homes that were flipped. And that's the most of any metro area that we analyzed nationwide, which - we looked at 174 metro areas.
SHAPIRO: So I went to see what's happening and look at whether we should worry about old bad habits returning along with the flippers.
We've just climbed to the top of Camelback Mountain, which is about 2,000 feet over the city of Phoenix. And we can see the sprawl stretching out in every direction. And it's dense with single-family homes. So there aren't a lot of high-rises. There aren't a lot of apartment buildings. There aren't a lot of opportunities to put more people in the central part of the city, which is where people want to live right now. And that's one of the incentives for so many people to remodel and flip homes.
LAUREN ROSIN: So this was actually a courtyard. And I blew it out, expanded the roof. And that's going to be a beautiful, large kitchen.
SHAPIRO: When I climbed down the mountain, I met a couple of house flippers in a partially rehabbed home in an upscale neighborhood full of yucca plants and saguaro cactuses. Lauren Rosin and Brad Pickett could easily have their own HGTV show. They look like people who do CrossFit with perfect hair and stylish clothes. And they clearly know their material. They got into real estate during the bubble. So I asked them to explain the difference between what flippers were doing then and now.
BRAD PICKETT: We both used to do loans. And they had a non - no income, no asset loan called a NINA. And literally, if you had above a 700 FICO, you didn't have to prove your income or prove any assets. You could get the loan.
SHAPIRO: Now he buys the houses and she rehabs them. They say it's harder to make money in flipping today. You have to really know what you're doing, and the margins are not as big.
We're in a moment right now where Phoenix real estate prices in some parts of the city are growing 30 percent in a year.
SHAPIRO: What does that big sigh mean?
ROSIN: It's too fast. I think you're going to see a small adjustment. You're never going to - you're not going to see the crash that we saw again anytime soon. There's many reasons why. I mean, a lot of people have skin in the game right now. A lot of people have equity in their homes.
SHAPIRO: She says before the crash, people bought houses and rented them out while they waited for housing prices to keep climbing. Renting out the houses wasn't the point. The point was to ride the bubble. Some people even lost money on the rental income. So when home prices went down, lots of people just walked away from those mortgages.
ROSIN: And they were like, well, why are we keeping this home? I have nothing to gain from keeping it. So a lot of people threw their hands up in the air.
SHAPIRO: There's new research showing that Lauren Rosin is exactly right. Yes, some of the housing crisis fell on people who bought and lived in a home they couldn't afford. But researchers are just now coming to understand that a big part of the problem was people with better-than-average credit scores who owned multiple homes. These were not subprime buyers. Some of them were landlords. Others were flippers. Stefania Albanesi is an economist at the University of Pittsburgh. She's been studying this.
STEFANIA ALBANESI: These borrowers, you know, looking to buy their second, third and fourth homes would tend to go to nonconventional lenders and would tend to obtain loans through nonstandard products such as adjustable rate mortgages and so on. And so these loans are more expensive. They have higher interest rates. And so other things equal - you know, it's more likely that these borrowers might default.
SHAPIRO: In other words, 10 years ago flippers were part of the problem. And today Brad Pickett says there are so many flippers in the market he has a hard time finding properties to buy.
PICKETT: For example, to get one deal under contract it costs us $6,000 in direct mail. So we've gone on to other things such as voice broadcasting, Press 1 transfers.
SHAPIRO: Oh, wait. You're responsible for the calls I get...
SHAPIRO: ...On my cellphone that are like...
SHAPIRO: ...Do you want to sell your home? I have an interested buyer on the line. Please hold. That's you?
PICKETT: That might be me, yeah.
ROSIN: That's him. Yeah.
PICKETT: That's - that could probably be me (laughter).
SHAPIRO: Glad I could meet you face to face so that I can tell you how obnoxious that is.
PICKETT: Do you actually have a home for sale?
SHAPIRO: I have a home. It is not for sale.
ROSIN: Yet. Everything has a price.
PICKETT: Next time, press two.
SHAPIRO: (Laughter) All right.
So flippers contributed to the housing crisis. House flipping is now at an 11-year high. Should people be alarmed? Mark Stapp says probably not. He teaches real estate development at Arizona State University's business school.
MARK STAPP: The issues we had previously with abuse through manipulating appraisals - that really isn't happening.
SHAPIRO: So lenders are being much more cautious than they were 10 years ago.
STAPP: Absolutely they are.
SHAPIRO: But I see these weekend workshops that are like, learn how to flip houses and make tens of thousands of dollars in no time or HGTV shows that make it look like you can do this on a weekend and make an extra income. And I - it sounds like people are getting encouraged to dip a toe in this water who don't know how to swim.
STAPP: And it drives me insane because the number of issues related to this business that affect success are far greater than those TV shows ever express. And they simplify how you deal with them to the point where it's actually dangerous.
SHAPIRO: And that's not creating risk for everyone in the housing market?
STAPP: I think it's such a small number, Ari. I don't think that it is to the point where it so dramatically affects the market that the market gets hurt by it.
SHAPIRO: So if you want to start a side business house flipping in your spare time, the good news is you probably won't decimate the global economy, but no guarantees that you'll turn a profit either.
(SOUNDBITE OF BOOZOO BAJOU'S "KINDER OHNE STROM") Transcript provided by NPR, Copyright NPR.