Effects of House Flips on Local Housing Transactions

Abstract

This study explores the possible impacts of short-term house trades, often called “house flips,” on local housing markets. Using nationally representative data across multiple U.S. housing markets during 2000–2013, we test the Spillover Hypothesis and the alternative Competition Hypothesis for the influences of flips on the neighborhood non-flip house transactions. We find that the local flip tendency, our measurement for local flip activity, is negatively associated with the holding durations of neighborhood houses experiencing non-flip resales, and positively associated with their resale prices, after we control for market conditions that affect both flip and non-flip transactions as well as other potential determinants for holding duration and price. The effects are generally more prominent when the local flip tendency is measured for a longer run, supporting the Spillover Hypothesis. These effects are also persistent regardless of whether the local flip tendency is defined as the proportion of flips in the local resales by transaction number or by transaction volume, or whether it is measured continuously or discretely. The results also hold when we endogenize the local flip tendency, or when we change the neighborhood size. These findings demonstrate the substantial influences of flip activities to the local housing market turnover and price movements.

Keywords:

• House flip
• neighborhood
• spillover effects

Acknowledgments

We acknowledge invaluable advice and data supports from Michael LaCour-Little, and helpful comments from an anonymous reviewer of Journal of Housing Research, as well as Lingxiao Li, Desen Lin, Suiling Long, Michael Seiler, Cheng Keat Tang, Siu Kei Wong, Fan Yi, Zhe Liu, and the participants of the 2021 AsRES (Asian Real Estate Society) – GCREC (Global Chinese Real Estate Congress) –AREUEA (American Real Estate and Urban Economics Association) Joint Conference, the 2022 AsRES – AREUEA Joint Conference, and the 2023 AsRES-GCREC Joint Conference.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 See, for instance, Depken et al. (2009) and LaCour-Little and Yang (2021). The cutoff point is set as the two-year holding period, mainly because that in the U.S., those who resell within two years of purchase will lose up to $250,000 ($500,000 for a married couple filing jointly) of capital gain exclusion benefit for tax if the property was their primary residence.

2 See article titled “Zillow Intends to Buy and Flip Homes” by Laura Kusisto and Rolfe Winkler, at Wall Street Journal on April 12, 2018, available from https://www.wsj.com/articles/zillow-intends-to-buy-and-flip-homes-1523581268.

3 See article titled “Goldman Sachs to Lend to House Flippers” by Liz Hoffman and Peter Rudegeair, at Wall Street Journal on October 12, 2017, available from https://www.wsj.com/articles/goldman-sachs-to-buy-house-flipping-lender-1507826252.

4 See article titled “House Flipping Has Not Flopped” by Sarah Wolak, at National Mortgage Professional on August 31, 2022, available from https://nationalmortgageprofessional.com/news/house-flipping-has-not-flopped.

5 Hazards models are often used to analyze property holding duration and time on market. See, for instance, Collett et al. (2003), Deng et al. (2003), Archer et al. (2010), Benefield et al. (2012), and Li, Bao et al. (2023).

6 See, for instance, Benefield et al. (2019) and Cifci et al. (2022).