Investor Activity in 2014
The Trulia predictions earlier this week included several references to less investor activity in 2014, due to higher prices. In particular was his #2 point:
2) The Home-Buying Process Gets Less Frenzied. Home buyers who can afford to buy won’t be as frantic as buyers in 2013. That’s because there will be more inventory to choose from, less competition from investors, and somewhat looser mortgage credit in 2014.
Investor activity is less than what the media will have you believe – at least in San Diego. According to this article by the Fed, investors made up less than 4% of total sales in San Diego in 2012. Flippers came on strong this year, so the 2013 investor count is likely to be higher than last year’s, but probably still under 10% of the overall market.
I don’t think investors are done.
They will only quit when they’ve been burned – and it will probably take a few big losses to run them out of the business.
Instead, I think we will see increased competition for the deals – the standard listings that are priced at the comps or under. There should be a solid floor to the market.
But investors/flippers will be under increased pressure to pay more than they are comfortable paying – everyone is!
They will try to pass it on to the retail buyer, and bump their list prices even higher. Because of their confidence from recent successes, they will main contributors to the OPT pool (over-priced turkeys).
It’s already happening - there are flippers sitting on OPTs everywhere, confident that once the holidays are done, the buyers will be back.
However, the market has been extremely active the last couple of months – there hasn’t been much of a holiday dip in buyer interest, there just aren’t many quality homes for sale at decent prices.
Coming off a boisterious 4Q12 and fueled by mortgage rates in the low-to-mid 3% range, the spring selling season went gangbusters this year.
But now that the hyper-frenzy is done, buyers aren’t jumping at everything any more.
The current environment is much more cautious, which is ideal for a standoff. With (over) confident flippers continuing to push their list prices, and regular sellers tacking on an extra 5% to 10% just to make sure they get all their money, we are ripe for the Big Stall in spring.
P.S. Trulia’s other comment about ‘somewhat looser mortgage credit in 2014′ is suspect too. We haven’t covered the QM yet, but back-end ratios will be limited to 43% starting January 1st - and they have been as high as 50% this year.