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The Flips Keep Coming

Posted January 25th, 2017 under market updates, smart buying.

Since 2013, I’ve been monitoring the increase in “flips” in Brampton, and their negative effects on the housing market. (A flip is a home that is bought, renovated, and sold for a profit, without the buyer ever living in it.)

Last January, I wrote about the possibility that flips were artificially inflating prices in Brampton. When someone flips a home, they push for a higher price so they can recover their carrying costs, pay for the renovations, and make a profit.

Of these three, only the renovations actually add value to the home. The other two increase the price without adding value. The problem is that other sellers, who are actually living in their homes, use the flip as a price benchmark when they sell, and prices are pushed up overall.

Let’s look at the statistics for the past few years.

In 2014, about 8% of sales were flips, with an average price increase of $88,300 between buying and selling. In 2015, that rose to 14% of sales, with an average price increase of $110,400. Finally, in 2016, the ratio was 8% again, but with an unbelievable price increase of $122,500 between buying and selling!

Think about the impact of having every 10th home in your neighborhood having a false price increase of anywhere from $50,000–$80,000 or more.

You can see how market value would quickly drift away from true value! This is what has been happening in Brampton. A market won’t tolerate false prices forever—there’s always a correction eventually when prices return to the true value.

Want to know more about what to look out for when buying a flip? Just ask me, I'll be happy to help.

--Peter

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