Is the Current Housing Recovery Sustainable?
I just read a report by Radar Logic that is questioning the recent good news about the housing market being spouted through-out the media. Housing is always a strong driver of economies working out of recessionary times – that is for sure. Therefore anytime the media and people in general hear something positive about housing they desperately want to latch onto it in hopes of ending the severe pain recently suffered in the US economy.
You most likely have heard experts say that numbers can be spun anyway you want and some of that certainly is happening here. The politicians want to make you feel like they are actually helping you so when glimmers of hope appear they want to make it seem like the sun is finally breaking through the clouds and the long rains are stopping.
Then of course you have the glass half empty folks who will spin the statistics to show you why we are heading for a double dip and the worst recession in modern history will continue through 2018 (yes some are clearly saying that).
For me personally I fall right in the middle of these opposing theories. First you have to always analyze real estate news from a local perspective. There certainly are general national trends but you must then break it down into your state, your county and then your specific region within that county in order to make intelligent decisions regarding your own real estate issues. Let me give you a great example of that:
The Sacramento Bee recently reported that investment giant Blackstone has bought 500 houses spending over $60 million in the last few months in the Sacramento area. Explaining Blackstone’s attitude on pricing it quoted Eric Peterson saying “I don’t really care what I pay today… Ten grand’s not going to affect my return that much.” The article claimed that they paid on average a 20 percent premium for their purchases. One example given in this shocking article was a 1,000 square foot home that was purchased for $175,000 or roughly 80 percent more than Zillow estimated the home was worth.
This caused some unnatural forces to affect the local Sacramento market. It subtracted from an already small inventory and it added cost to average sales prices. Both of these forces caused an uptick in local pricing over the last 6 months.
In the article just published Radar Logic goes into much more specific detail of these type of forces that affect the real estate markets through-out the country. They claim, and the Sacramento market clearly confirms, that the recent increase is NOT a result of “significant appreciation in household-owned homes”.
They went on to state “a significant and increasing share of demand in the last year has come from institutional investors rather than households.”
While investors are helping to push prices up, Radar Logic says the growth is not likely to last as prices for REOs see an increase. “If prices rise to a point where investors’ expectations of future home price appreciation do not support their desired returns, then demand for REO will decline and prices could fall again,” the report stated.
The report also pointed to data from LPS, which shows 1.8 million properties are in pre-sale foreclosure inventory and another 3.5 million properties are more than 30 days or more past due but not in foreclosure, leading to a total of 5.3 million properties in distress.
Radar Logic believes that at some point, “these distressed properties will make their way onto the market, and as they do they will weigh on home price metrics.”
In addition to the numbers above there are an estimated 10 Million, yes I said 10 MILLION underwater borrowers many of which will soon give up trying to save their mortgage.
There also will be homeowners who have been waiting to sell their house and buy a move up home. Many of these will hit the market soon and this will add to inventory. Low interest rates will drive some more of this. Supply and demand forces will dictate fluctuations since investors will at some point stop buying and supplies will increase.
Instead of a steady rise towards recovery there will be a “saw-tooth pattern until the shadow supply has been substantially absorbed,” the analytics firm Radar Logic stated.
That means, based on the incredible large numbers of people still stuck in the housing downturn with upsidedown mortgages, a lot of areas (like Sacramento) will continue to bounce around the bottom while we work through this large shadow inventory. Certainly the higher priced homes will continue to fall through this sustained period of adjustments.
If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation. You can call me at 877.442.4577 or send me an email at firstname.lastname@example.org or just visit my website www.upsidedownca.com.
California Attorney and
licensed Real Estate Broker