Comments from two readers:
1. Can you please cover one more buyer anxiety – this one’s personal for me? I think that, after the artificial supply suppression and/or institutional investors are gone, the prices will drop. However, I’m not sure how far. So, my fear is that the prices may drop too far, which will make my purchase decision a very bad one. This is especially valid for some investment properties I’m thinking to buy.
2. JTR, I was also thinking about the “illusion of demand”. As both an investor and a house hunter, I see things from different points of view. The conclusion I have come to of late is that in many of the recent bidding war or multiple offer stuations, lets say 10 offers, most likely 7 or 8 of them are from speculators/investors/flippers, with only 2 or 3 from end users, and the end users more often than not get out bid. When this round of properties get shined up with marginal upgrades and are relisted to make a profit, will the end users still be there and will they be willing to (or more to the point, able to) pay the x+ the investor/speculator/flipper needs to make their profit?
My thoughts on each:
#1 – Traditional investment properties are valued on their income, so you would have to believe that rents would drop for the corresponding property values to decline. With the high difficulty of purchasing a home today, the rents should stay strong for the foreseeable future. I don’t see any artificial supply suppression or holdbacks of normal investment properties, none getting foreclosed really.
#2 Flippers have been very successful around NSDCC, even when paying retail – but they have caught the market in the perfect upswing. I think we will stop seeing short-sales, REO, and flippers within a year, and just see the occasional default. It’s doubtful that the debt-tax exemption will be extended again after it expires this year, and any homeowner who has hung on this long will want to reap some equity return, or go back to making payments.
An employee of Bank of America told me last week that they are finding a way to keep everyone in their house who wants to stay. Only those borrowers who completely give up are getting foreclosed, and I’m sure every bank is taking their sweet time with the process:
The demand is still fairly deep, and with virtually no bargains coming to market, those who are selling are reaping a nice windfall. We got caught up in a ferocious bidding war yesterday on this property:
It was listed for $895,000, though the last three model-match sales were $670,000, $765,000, and $800,000 (the $670,000 was the most recent, in January).
There were eight offers at, or above list price, and all had at least 20% down. The seller took a full-price cash offer that will close in 15 days – and left at least $50,000 on the table for that convenience.
The worst part is that there are six other losers out there for us to compete with on the next one!