April 4th, 2013 10:37 AM by Gregg Mower
This market is one of the strangest Real Estate Markets I have ever seen. In California the unemployment rate is over 9% still and yet the demand for homes is the highest I have seen it since the boom of the beginning of the century. Investors are buying up properties like they are going out of style. Hedge funds have come in to purchase Real Estate for cash and driving the prices up over the asking prices in most cases. There are multiple offers on just about any house that comes on the market. Real Estate Agents are double ending more transactions than ever. Interest Rates are still at historic lows further pushing the demand for first time buyers to enter the market. What does it all mean? Where are we headed? Should you jump in and buy as an investor or a first time buyer?
To answer these questions we have to look at your situation from a realistic point of view and plan for the future. As we have learned over the last 10 years there are booms and busts and that booms don’t always last and the busts seem to last too long. How can we see and avoid the inevitable? Well it starts with good information and historic trends in economics. What we do know is that there is investors have been buying Real Estate in California for a few years. Investors are betting that when they buy Real Estate that the rents will be a good return on their investment as well as the appreciation. As a first time home buyer you should not care about those factors other than you should be cautious in a down market when buying, in that you may buy and the home may go down in value but you must remember that this is your home not purchased as an investment and in the long run it will appreciate again. Now we must be able to see that eventually the investors, especially the institutional investors, will sell their investments to realize gains. When hedge fund investors sell the don’t just sell one house at a time the computer models tell them to liquidate based on predetermined factors usually at a certain profit level or loss, just like they would sell stocks on the stock market.
This is the single biggest concern I see certain markets in California. As the computer models kick in to sell their portfolios there will be an equal flood of houses on the market. Initially, those that have been sidelined by those very investors will be able to buy as inventory opens up. But the caution is that a Hedge Fund may drop a thousand homes into a market overnight and end up causing too much inventory, thus prices would have to come down to sell the remainder of those homes. If interest rates go up, which they will, and the market become flooded with inventory we are right back to where we were with too many homes on the market and not enough buyers.
So if you are a home owner that has seen the equity in your home(s) increase over the last few years due to the investor phenomena, then you might want to beat the investor’s computers to the punch and get your equity out and move up before they flood the market with inventory. This does not mean short sale your home, if you still don’t have equity or are underwater on your home, you should wait till you have the equity built up to pay for the costs of selling and moving and have enough for a down payment on a new home. I say this as most people don’t realize that a short sale will ruin their chances to go out and buy another home, as the short sale shows as a foreclosure on your credit report.
In conclusion, the crystal ball is showing that this summer you will see an increase in listing activity, meaning there will be more homes on the market as folks realize equity in their home. Interest Rates will creep up taking a certain segment of home buyers out of the market and possibly we will start to see institutions start to list more homes to sell. In the beginning this will be good and will move towards equalization in the Real Estate market. I would be cautious for the Real Estate markets in a year from now if Hedge fund models kick in and more inventory hits the market than there are buyers to buy it up. If you are an investor and you have homes that you have been considering selling you might want to beat the rush and get those homes on the market this year, as next year might be a totally different situation. We have to remember that big institutional traders like fluctuation in the markets, as they will get to buy low and sell high. What that means to the average public is that our Real Estate Markets could fluctuate wildly. But like with any market, the long term outlook has to be increases slightly higher than the inflation rate. We are in a new age and in staying informed of your surroundings will make you profitable in the long run. As usual any comments are welcome.