Real estate market cycles can turn on a dime. That’s why it’s so important to be “plugged in” to real data and statistics so you don’t make a mistake.
Practically overnight, real estate in many U.S. cities has moved from a buyer’s to a seller’s market. This is hard to believe when we’re still hearing stories of shadow inventory, negative equity and unprecedented foreclosures.
What is happening?
A seller’s market results from a lack of supply combined with increased demand. The opposite, of course, is a buyer’s market in which an abundance of supply is met with little demand. It would make sense that you would want to buy when there’s a lot of inventory and little competition, which is what we’ve been seeing during the recent buyer’s market. However, now that everyone wants to buy bargain real estate, the competition is getting fierce.
Several events happened simultaneously that turned the tide.
1. When Warren Buffet speaks, investors listen. In early 2012, he announced on CNBC that he’d buy a couple hundred thousand homes if he could find a way to manage them. The world finally woke up to what we’ve been saying for years. Real estate has never been so affordable and never cash flowing so well. Now hedge fund managers with billions of dollars are now buying up everything they can get their hands on. This is unfortunate for individuals who don’t have a billion dollars, and especially difficult for those requiring financing. It can take hundreds of offers to get a response.
2. Since 2007, building had slowed down to a trickle since there was already so much existing housing on the market that was far cheaper than the cost to build. And yet, the U.S. population is growing. New construction will be needed to keep up with demand, but it will take awhile for builders to get up and running and acquire the land and financing they need.
3. Banks aren’t foreclosing. On-going legal battles, robo-signing ordeals and state laws that block banks from foreclosing are keeping many delinquent borrowers in their homes with out a Notice of Default. It appears the banks are realizing it’s better for them to hold back inventory in order to create the seller’s market we’re now having.
It is very important to stay grounded in a seller’s market, because it can be so tempting to get caught up in the flurry of multiple offer competition. Not all markets have recovered, even if they are currently in a seller’s market. Inventory could hit the market just as quickly as it disappeared in those areas, and you don’t want to get caught having paid too much for something just because everyone else was. (You may not remember – the frenzy of 2006 in the USA which wasn’t that long ago!)
It’s also important to understand that some of the most solid US markets are in full recovery, and you could miss the boat if you don’t act quickly. The lack of inventory in those areas may be real, which will drive prices up and investors out.
So how do you know which markets are experiencing a real recovery and which are not? While it’s far too much to get into in this post, the main factors to consider are job and population growth, state taxes, affordability and government regulation. Check out which markets we believe are the best markets and engage in a discussion on the data that makes those markets good.
It’s an exciting time to be in the property game in the USA. Just make sure you know how to play.
By: Kathy Fettke, renowned real estate professional and host of her own radio show on KABC in LA; and Greg Uehling, property consultant in Australia.