Wolf here: occasionally I highlight comments that add a different angle or flavor or an illustration or more depth to an article published on Wolf Street. This comment is by Melissa Terzis who, as her bio at the Huffington Post  states, “has spent the majority of her career in Real Estate working in land development, home building and residential sales.” Her focus has been in the DC area. Her comment is in response to my article, Last Time this Happened, the Housing Market Crashed.

By Melissa Terzis:

Well, I continue to find myself nodding in agreement with everything you write about the housing market. What I’ve seen on the “front lines” of the market definitely supports what you are saying. I can’t speak about other markets, but the DC market – a longtime darling of the real estate industry for its “recession proof” reputation – has cracks in the facade as well.

Investors: The true investors, who know what they’re doing and who live and breathe this every day, were quietly buying up properties here in DC in 2009-2012 and prepping for a turnaround. They made the most money by flipping. They buy off-market, going door to door, and offering people who own their homes outright but have no cash on hand a “nice sum” of $250,000 cash to get out. They renovate the house, putting in $100,000, and flip it for $600,000. This was going on throughout 2012 and 2013.

When the straggler investors arrive, and you get calls from everyone and their mother who watch HGTV, see “Property Brothers” and think they can do this too – that’s when you know that it’s done. Flipping has effectively “jumped the shark.” Or when you get calls from investors in other cities, who don’t realize how it works in this market – that you can’t just toss renters out on their ear – that’s a sign that the tide has turned.

Because inevitably by the time the rest of the world knows that investors were making 60% profits flipping houses, everything else has self-corrected to remove such a profit margin from reality. Sellers aren’t foolish enough to part with their only asset for $250,000 cash when they should have received much more. So the real investors leave and the wanna-be investors arrive, and they just can’t make those numbers work.

Sellers: Many sellers in DC are pretty stubborn, still maintaining the fantasy that their house is worth 10% more than it was last year. Pretty much what you said in your article on Millennials is spot on: “Sellers are the last to accept the trends as they cling by their fingernails to some notional value of their home and to the tens or hundreds of thousands of dollars in wealth that they thought they already had in their pocket, only to see them evaporate.”

Buyers: Buyers who are still in the market right now are holdovers from spring or even last year, and they have a higher bar than many who went before them to the settlement table. (Some agents might call them “picky.”) The buyers now don’t want to fix up, they don’t want to renovate, and they won’t overpay or get involved in a foolish bidding war. Anyone who was willing to toss money (their own unearned equity!) at an overvalued home just for the purpose of buying while “rates were at all-time lows” might be left holding the bag. Unless they walk away – as many did who purchased in the previous run-up in prices.

Have you seen the Joshua Pollard letter? (Wolf: Yes, we wrote about it here Things Worse than Slow Growth Await the US Economy). Love your take on the market. No rose colored glasses on this site! By Melissa Terzis on Last Time this Happened, the Housing Market Crashed.

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