The Rise of Flipping
In trying to understand the housing boom leading up to the Great Recession of
2007–9, looking at the usual suspects, such as interest rates, tax rates, or
personal income, is not very helpful. Instead we should examine the shift to a
more speculative narrative in which people thought of their homes more as
speculative investments in land—a narrative that lenders welcomed.
The seeds of the world financial crisis were planted decades earlier. A new
meaning for the word flipper went viral in the United States in the 1970s and
1980s. At that time, a flipper was a sharp operator who buys a speculative
investment and then “flips” it, selling less than a year after purchase, to make a
quick profit. The term then became popular during a different kind of housing
boom: a condominium conversion boom. Owing to the very high inflation at that
time, the tax advantages of homeownership over renting significantly increased,
because one could deduct the interest paid on a mortgage (very high because of
the inflation) from gross income but could not deduct rent paid. Though high
nominal mortgage interest rates deterred some from homeownership, for many
others the expected appreciation in home value due to inflation offset the high
interest rate.18
To meet the demand, developers began buying apartment buildings, evicting
the renters of the individual apartments and selling the apartment units as
condominiums. Renters, some of whom had lived in their apartment for many
years, complained bitterly. To assuage them, the operators offered renters a
contract to buy, at the time of conversion, their own apartment at a discounted
price. The contract allowed them to resell the contract to people interested in
buying it. Many renters chose to “flip” their contract to speculators, who in turn
flipped the contract again. Flippers attracted a lot of public attention, and many
admired them as entrepreneurs who saw the opportunity quickly enough to cash
in on it.
By the 1990s, the term flipper was commonly used to describe people who
bought shares in initial public offerings (IPOs) and resold them quickly. People
often described the flippers in admiring terms, as people who understood that
IPOs were typically underpriced on the offering date. When the share price
popped up soon after the IPO, the flippers made a quick profit. A famous 1991
article by Jay Ritter showed that the initial IPO price pop tended to be followed

by weak performance over subsequent years, so the optimal strategy appeared to
be buying IPOs at the offering and then flipping them.
Then, in the early 2000s, during the enormous home price boom, the term
flipper became attached to people who bought homes, fixed them up a little or a
lot, and sold them quickly. Once again admiring stories were told of their
successes. While most people were not enthusiastic enough to actually flip
houses, they may have imagined that they were engaged in “long-term flipping”
simply by purchasing a primary residence as a long-term investment. Thus they
engaged the speculation narrative.

Mansions and Modesty
Exuberant real estate narratives did not stop with the 2007–9 world financial
crisis. In October 2012, the Wall Street Journal launched a new section in the
newspaper. Called “Mansion,”19 it was a response to a section in the Financial
Times titled “How to Spend It,” but “Mansion” focused on housing. Notably,
2012 was the same year that home prices in the United States started rising
sharply again after the 2007–9 world financial crisis. It was also the year in
which the police finally cleared the Occupy Wall Street movement, which had
started a year earlier, from Zuccotti Park in New York City. The movement had
been attracting much attention to the slogan “We Are the 99%,” referring to the
majority of the population who cannot live extravagantly, in a public assertion
that these people matter.
The “Mansion” section seemed to scream that the top 1% mattered even
more. It featured lush photo spreads of lavish homes and their pretentious
occupants in a tone of gushing admiration. But the section also reported on
anxieties about ostentation and about fears of public disgust at such
extravagance. For example, a 2017 article in “Mansion,” “Tech CEOs: Lie Low
or Live Large?” discussed in detail the quandary that heads of technology
companies face in deciding how big a home to buy. The article made clear that
the choice of a home is part of a delicate balancing of forces in a career-
optimization strategy. Hence “Bay Area real-estate agents say their clients are
becoming reluctant to buy fancy homes, for fear of spooking investors wary of
distracted or high-living founders.”20