FLIPPING HOMES IN STATE DOWN PRACTICE AT LOWEST LEVEL SINCE 2003.

Byline: GREGORY J. WILCOX Staff Writer

House flipping in California last year declined to its lowest level since 2003 as speculators retreated from a market in which sales plunged and prices flattened, a market tracker said Thursday.

Homes owned for six months or less accounted for just 3.2 percent of resales last year, down from 4.2 percent in 2005 and 3.6 percent in 2004, according to the San Juan Capistrano-based HomeSmartReports.com.

Overall, flippers sold the homes for a median $45,000 more than they paid, somewhat lower than $52,000 in 2005. If there were improvement costs, profit would be correspondingly lower.

In 2003, when HomeSmart- Reports.com began tracking flipping, the practice of buying and then quickly selling a home, it accounted for 2.4 percent of resales.

The company tracked public records and considered a house flipped if it was owned for six months or less.

In Los Angeles County, flipping accounted for 3.6 percent of sales last year versus 4.4 percent in 2005.

This level of activity is not surprising because sales last year were well under the 2005 level. Prices, though, have not plunged because the economy is still growing, albeit at a modest pace.

``What's happened now is the flipping activity is just reflective of today's real estate climate,'' said Steve Morgan, the company's senior vice president.

``Investors, if they can, have adopted a buy and hold strategy until prices come back up.''

And if prices don't start rising some owners will be forced to sell and cut their losses, he said.

Flipping activity was highest in Kern (4.7 percent) and Riverside (4.3 percent) counties last year and lowest in Napa County (1.9 percent) and in rural Sierra foothill counties (2 percent).

Communities with the highest rates in 2006 were Corona (12.9 percent), Playa Vista (12.3 percent) and San Jacinto (12.2 percent).

``Speculative buying and selling of homes contributes to market volatility and risk, all part of that `bubble' theory people were talking about. Lending institutions measure risk and volatility, homeowners and buyers would also do well to keep an eye on them in addition to watching the ups and downs of their local prices and sales,'' Mike Ela, the company's president, said in a statement.

When factoring in commissions and costs, 24.9 percent of the last year's flip sales resulted in a loss for the seller, the highest percentage since 25.2 percent during 2002.

``As the market has cooled off, particularly in terms of prices, the investors have become increasingly wary about buying investment homes,'' said Nima Nattagh, an independent market analyst.

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