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Bidding wars and tight supply (or the perception of such) go hand in hand.
Tight supply may be a product of investor activity, which does not necessarily predict strong long term demand.
Bidding wars and tight supply usually do not go hand in hand. If anything, the free market says that bidding wars (meaning a seller's market) would motivate more people to sell their homes and the builders to built more homes. It should drive more and more supply to the market until it reaches an equilibrium.
Also, investor activity doesn't signify a strong nor weak long term demand, it simply has very little to do with the long term. The economy and credit are what usually determines the long term demand.
Bidding wars and tight supply usually do not go hand in hand. If anything, the free market says that bidding wars (meaning a seller's market) would motivate more people to sell their homes and the builders to built more homes. It should drive more and more supply to the market until it reaches an equilibrium.
Also, investor activity doesn't signify a strong nor weak long term demand, it simply has very little to do with the long term. The economy and credit are what usually determines the long term demand.
In this market though, there has been record low inventory (mainly due to banks artificially supressing it and investors like Blackstone buying blocks of thousands at a time) and bidding wars due to historically low interest rates. As the rates increase, those bidding wars will likely subside. Due to the lag time for home sales, we have to wait until August for the direction of home sales and prices. That's because
mortgage rates shot up in May, so anything closing now does not likely reflect that as most people lock in for at least 60 days when submitting their application.
When they put all the foreclosures on the market there will be plenty of supply. It's an artificial shortage.
Not necessarily. The "foreclosure inventory" (or shadow inventory) is a lot smaller now, and much of it is either currently occupied or in disrepair after years of neglect, or both. These homes do not represent the same kind of pent up supply that we had in 2007 when large numbers of homes were sitting unoccupied. 6 years of record low home building along with population growth have erased the excess capacity.
With prices up and more people able to move homes will continue to turn over, although the rise in rates will start to dampen price increases in areas with less demand or less affluent buyers.
Real Estate will continue to regain value. Inventory is low, homeowners are now selling for a profit and getting mulitple offers. Rates are still at an all time low but they are going up.
Next year this time? - rates 5 1/2 - 6% and a sellers market.
Not necessarily. The "foreclosure inventory" (or shadow inventory) is a lot smaller now, and much of it is either currently occupied or in disrepair after years of neglect, or both. These homes do not represent the same kind of pent up supply that we had in 2007 when large numbers of homes were sitting unoccupied. 6 years of record low home building along with population growth have erased the excess capacity.
With prices up and more people able to move homes will continue to turn over, although the rise in rates will start to dampen price increases in areas with less demand or less affluent buyers.
The reason foreclosures are in less supply now is because institutional investors have been going crazy buying thousands of them. They are starting to exit that however since the increase in prices. Not only that, they are not seeing the returns they were hoping for so they may be dumping those homes soon. In addition, it was recently reported that almost 50% of the people who got loan modifications have now defaulted, which means many more foreclosures coming through the pipeline.
I for one am interested to see what August and September's data says. Should have a clearer picture by then since the increased rates will have had a chance to be reflected in that data. I am in the market to buy a home so I am hoping that rates don't go up too fast. The last 2 mos have increased my potential monthly payment by about $400 which is basically another car payment.
Bidding wars and tight supply usually do not go hand in hand. If anything, the free market says that bidding wars (meaning a seller's market) would motivate more people to sell their homes and the builders to built more homes. It should drive more and more supply to the market until it reaches an equilibrium.
And until you hit "equilibrium" there is a relative shortage of supply and excess of demand.
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Also, investor activity doesn't signify a strong nor weak long term demand, it simply has very little to do with the long term.
Exactly my point, if short term demand is boosted by investors, it does not mean that demand will persist (long-term).
The reason foreclosures are in less supply now is because institutional investors have been going crazy buying thousands of them. They are starting to exit that however since the increase in prices. Not only that, they are not seeing the returns they were hoping for so they may be dumping those homes soon. In addition, it was recently reported that almost 50% of the people who got loan modifications have now defaulted, which means many more foreclosures coming through the pipeline.
I for one am interested to see what August and September's data says. Should have a clearer picture by then since the increased rates will have had a chance to be reflected in that data. I am in the market to buy a home so I am hoping that rates don't go up too fast. The last 2 mos have increased my potential monthly payment by about $400 which is basically another car payment.
The investor buying was mostly low end houses. Witha 30 year fixed, your loan balance would need to be over $700k to have increased by $400/mo. if thats the market you are shopping in,not sure why you're concerned about investors dumping a bunch of sub $150k homes. Different markets entirely.
In this market though, there has been record low inventory (mainly due to banks artificially supressing it and investors like Blackstone buying blocks of thousands at a time) and bidding wars due to historically low interest rates. As the rates increase, those bidding wars will likely subside. Due to the lag time for home sales, we have to wait until August for the direction of home sales and prices. That's because
mortgage rates shot up in May, so anything closing now does not likely reflect that as most people lock in for at least 60 days when submitting their application.
I honestly don't think banks or Blackstone are the main reasons for the low inventory. Banks have always been artificially suppressing their inventory, even when market inventory was high. So that's not the reason. Markets where Blackstone have all but exited (like SF Bay Area, at least for the residential side) are still having record low inventory. So it's not because of Blackstone buying up properties.
I don't know why there is a record low inventory, I have a few theories but this market is behaving rather oddly now. The free market says that we should see more and more inventory moving forward, I guess we'll just have to wait and see.
And until you hit "equilibrium" there is a relative shortage of supply and excess of demand.
Ah, I get your point now. Yes, a tight market does encourages bidding wars. Hopefully, it reaches an equilibrium soon.
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Originally Posted by RE Skeptic
Exactly my point, if short term demand is boosted by investors, it does not mean that demand will persist (long-term).
But there are also many buyers, not investors, regular buyers who are driven to the sideline by this crazy market and will come off the sideline when the investors exit. I think there is a strong long term demand because the pend-up demand, economy, and rates are all working for the housing market in the long term (5+ yrs).
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