In the run-up to the 2008 financial crisis, millions of amateur investors kept adding fuel to the overheating US housing market by betting on quick profits in hotspots like Las Vegas or Miami. A decade later, house-flipping is making a comeback, but this time in some Rust Belt cities the last boom passed by.
Not only the scenery has changed. Today's house-flippers - those buying properties and selling them within 12 months - are mainly contractors and professional renovators who buy run-down properties in promising neighborhoods and fix them up, boosting the resale value.
In contrast, those who contributed to the speculative frenzy of the early 2000s would typically take out a mortgage to buy a home, perhaps give it a new coat of paint, wait for prices to rise enough to cash in and do it over again.
Today, old industrial cities such as Pittsburgh, Buffalo and Cleveland are among those offering the greatest returns. They have struggled to recover from the recession, but now are beginning to attract tech firms, such as Google-parent Alphabet Inc, Uber Technologies Inc, and Amazon.com Inc.
The influx of new workers is boosting demand for urban homes in areas that have some of the oldest housing stock in the nation and not much new construction, creating richer opportunities for flippers than in Las Vegas or Miami at the height of the housing boom more than a decade ago.
"Even at their peak in terms of home flipping profits, these two markets never came close to the potential returns available now in Pittsburgh," said Daren Blomquist, senior vice president at real estate tracking firm ATTOM Data Solutions.
In Pittsburgh, home flippers made a gross profit of 162.7 percent on average during the second quarter of this year, while in Buffalo, the average gross return came in at 107.5 percent, according to ATTOM data. Nationally, the average house-flipper earned a 44.3 percent gross return on investment this year, compared with the 35.3 percent during the boom.
While house-flipping is more lucrative than before, stricter lending rules mean fewer would-be investors can afford to join the fray. Nearly 48,770 single family homes were flipped nationwide in the second quarter of this year, about half of the number during the peak of the house-flipping craze in 2005, according to ATTOM data.
Market statistics do not distinguish between casual investors and pros, but the high share of cash deals in the top-performing markets suggests they are a domain of full-time house flippers such as Kris Bennett.
The former pro BMX racer opened his Pittsburgh firm that specializes in renovating and flipping houses in 2009 and now has a team of six and 18 projects under management.
In Pittsburgh, nearly 75 percent of flipped homes are paid for in cash while in Cleveland cash deals account for 80 percent of house flipping compared with 60 percent nationwide.
Real estate analysts say those numbers suggest there is little risk of a repeat of 2008. Back then investors who financed their speculative bets with mortgages were primarily responsible for the surge in defaults that fueled the crisis, according a National Bureau of Economic Research paper published last year.
“We found that someone is much more likely to default on an investment property than a residential one because it’s a purely financial decision with no psychological costs,” said Stefania Albanesi, one of the study’s authors and University of Pittsburgh economics professor.
Today's flippers not only rely far less on borrowing. They also help increase the supply of quality housing in some long- neglected markets, analysts say.
"Pittsburgh's housing market was under-invested in for 40 or 50 years," said Aaron Terrazas, senior economist at real estate listing firm Zillow. "The housing stock in the urban core of these cities requires substantial investments to update these older homes and bring them up to modern living standards."
That, however, is fuelling concerns that long-time residents may get priced out from their neighborhoods that are now in demand. For example, in Pittsburgh's Lawrenceville - now home to Uber's self-driving car division - the average home price jumped from $72,993 in 2007 to $236,951 in 2017, a gain of 224 percent, according to RealSTATS, a local real estate listing firm.
Overall, prices are up 7.9 percent in the Pittsburgh metro are so far this year, just below the US average, according to estimates from real estate listing firm Zillow.
In Buffalo, median home prices are up 14.9 percent over the last 12 months and are expected to rise another 12.2 percent in the year ahead, according to Zillow. In Cleveland, prices are up 18.6 percent over the past 12 months and are expected to rise another 7 percent over the next 12 months.
In response to affordability concerns, the Pittsburgh authorities raised real estate transfer taxes this year to fund a Housing Opportunity Fund designed to spend $10 million annually on preserving and developing affordable housing in the city.
With home prices still far below the national average, real estate professionals in Rust Belt cities expect the influx of workers from costlier locations and the pressure on the markets there to continue.
The median home in Pittsburgh, for example, is now worth $141,300, a third below the national average and about 85 percent less than the $953,600 median in tech-heavy San Francisco, according to Zillow.
"Pittsburgh is becoming a whole different city," Bennett said. "While locals might be surprised by the prices, almost all of the homes I'm selling are to people who are coming from places like D.C. or Boston who can't believe how affordable it is."