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.