Apr 11, 2013
Is the current increase in home prices sustainable or has the market been manipulated?
Nationwide reports of increasing home values leaves many unanswered questions. Is there really a sustainable recovery in homes values or are values been distorted due to supply side manipulation? Over $9 billion has been pored into the single family foreclosure market by investors, creating what could well be a temporary supply side shortage of single family homes. Institutional investors looking to build large portfolios of rental properties, continue to reduce the availability of REOs (Bank Owned Properties) and foreclosures available for sale to the general public. In addition, lenders are slow walking the availability of REOs to the home buying public, suspicious at a time when there is a general increase in demand. REOs are also listed for sale at low prices with the sole intension of generating multiple offers, instigating bidding wars resulting in high prices normally not supported by appraisals. These factors have created an abnormality in housing supply, leading to the inability for many normal homebuyers finding suitable homes available for purchase.
The numbers of first time homebuyers, the engine that drives a sustainable housing recovery has been declining. Should the recent rapid increase in home prices continue to exert downward pressure on the numbers of first time buyers entering the market place the housing recovery cannot be sustained. A true recovery of the housing market must be driven by increasing demands from normal homebuyers, a recovery driven by investors is likely to be only temporary.
There are still a large number of home going through the foreclosure process that will sooner or later be added to the REO inventory. Should a significant number of these homes enter the market quickly they could well stabilize home prices and help in sustaining this fragile housing recovery.
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