Double-digit home-price gains from San Francisco to Detroit to Miami have some aspiring home buyers racing back into the market.
But buyers, beware.
The housing market may not be as strong as you think.
Sure it’s tempting to want to lock in a low interest rate and take advantage of lower home prices before they rise further.
But it may make sense to take a breather before you buy a home and wait for prices to drop, as institutional investors might be inflating home prices.
Namely, Wall Street investors are scooping up homes in bulk, and there’s considerable concern this is inflating prices in certain areas of the country—and pricing individuals out of the market in general.
These institutional investors have been spending billions of dollars buying up single-family homes en masse. In 2012, institutional buyers purchased about 138,540 of both distressed and non-distressed homes in the U.S., or about 3% of all sales, according to RealtyTrac. It estimates institutional buyers purchased 32,355 homes in the U.S. in the first quarter of this year, or about 3.5% of home sales.
That may sound like a small amount of purchases, but in certain markets institutional investors are taking a larger stake. For example, institutional buyers accounted for 5% and 8% of sales in Arizona and Nevada, respectively, so far this year.
And some of the hottest markets for big corporate buyers from 2010-2012 are seeing some of the biggest price jumps this year—Phoenix, Las Vegas, the San Franciso Bay Area, portions of Florida and elsewhere.
There are concerns we may be headed for another bubble in areas where housing-price gains may not be sustainable, especially if unemployment remains high, interest rates start rising, selling prices peak and investors quickly unload their holdings in bulk, depressing home prices.
“I’d discourage a client from buying in an area with a lot of institutional action in that there might be some uncertainty as to the institutions’ plans with the property,” says Brian Frederick, a financial planner in Scottsdale, Ariz.
Add in a small supply of homes for sale—thanks in part to regulations that limit the pace of foreclosure sales and underwater sellers who owe more on their mortgages than their houses are worth and are holding out for even better prices—along with pent-up demand from people who have been waiting to move until they’ve felt more economically secure and tight lending standards—and you’ve got the makings of some frustrated, and maybe over-eager, would-be buyers.