WatchThis guy has some good commentary on it:
In Phoenix investor purchases have been hovering around 50 percent for almost three years. Investors are understanding this is unsustainable and are pulling out of markets and going to other places like Atlanta that saw home prices crash on a later trajectory compared to places like Arizona. At the peak some 20,000 homes were selling each month. For the latest month of data we have 8,979 homes sold, a drop of 4 percent from the last year.
So it looks like Phoenix is cooling and Atlanta is heating up.
I had to write about this topic because this is the first time in many years that I have seen e-mails coming in with headlines of “30 percent annual gains” coming in. The fact that a large number of these investors are already getting tired in certain markets tells me they were never in it for the long haul. Let us not even address the reality that household incomes have been stagnant in Arizona for well over a decade. What happens when half of your buying pool begins to pull back? As far as I can remember, we now seem to be in a perpetual cycle of boom and bust. Try to time your entrance on the financial rollercoaster. Some are already getting off.
Yikes. Do the price increases seen in Phoenix and much of CA represent an echo-bubble or a sound recovery? My sense is that CA is a bubble (house prices detached from the reality of average income) and Phoenix WAS an opportunity but is now leveling off.
Since I own property in Atlanta, I'm watching this closely.
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Will you come over and change my catheter?
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Atlanta, GA
[/slowly backs away from thread]
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Seattle, WA
David Losh's website
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Here in Seattle we have a couple of hard money groups, one called Vestus, that lends the funds for six months for "investors" to flip properties. Last year some of the clients they had began sending back properties they could not sell.
Last year also Obama promised hedge funds blocks of Fannie Mae houses to play with, rent out, and make a return. Real Estate "wholesaling" was also done after the Savings, and Loan scandal.
All in all it seems to me the investor foreclosure market got saturated, and the buyers, of the flips got hip to the tricks, and weren't willing to pay premiums.
We just sold a property in Atlanta for $30K, and if we sold in 2008 it would have been $90K, 2010 $60K.
Some people are calling this sopping up, but I refer to it as fair market value.
I think once the investors are done the Real Estate market will fall by the gravity of no more free money bank loans at these high prices, with historically low interest rates.
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David Losh says
ROFL sorry just LMFAO.
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San Francisco, CA
Is it a common practice to use "Median List Price / Median Wage" as proxy for whether or not a local market is under/over priced?
Just quickly eyeballing it, to me, Phoenix actually looks like it is properly priced now (median family income is ~$47k per Wikipedia). So the 30% pop in prices y-o-y is a market correction and not a bubble.
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Seattle, WA
David Losh's website
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OK, they began sending back properties they couldn't sell.
I think it's the same in most distressed market places; the investors come in, flood the market place until buyers get hip, then they move on.
Here in Seattle the same investors are still going strong, but stopped buying in 2009. Cash flow, for now, negative equity tomorrow.
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Atlanta, GA
This is interesting - some hedge funds are looking to cash out and EXIT the landlord business at the same time that others are coming in:
http://news.yahoo.com/exclusive-och-ziff-hedge-fund-looks-exit-landlord-211902686--sector.html
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Atlanta, GA
Notice though that it's portfolio of 300 homes is in CA, where prices have rebounded sharply.
I'm still convinced CA is a huge bubble that only slightly deflated but has yet to actually pop.
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Laguna Beach, CA
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David Losh says
This is already happening. Real Estate historically has been only an average yield investment compared to other vehicles, and "speculators" are beginning to realize in this environment it's also volatile YOY. This volatility won't disappear until the FED f*cks off.
The funny thing is the speculators already learned that lesson in Las Vegas circa 2010, yet here they are again in Phoenix and Atlanta in 2012.
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I am still of the camp that considers fundamentals to be important. But I do realize Bubbles Ben the man in charge of the biggest printing press in the world thinks that fundamentals are for fools.
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Scottsdale, AZ
robertoaribas's website
David Losh says
mostly, this is nonsense. Hard money lenders only loan to 70 or 75 percent to a minimum of the property price, or their estimate of its value. You don't see people walking away from the 25% down, plus remodel very often, only a complete idiot would enter a project that ill informed...
David Losh says
most of the investors are buying with cash. So, if prices fall, they will simply keep collecting rent. You can make up your own dream scenarios all you want, I'm one of those investors, most of my places have no mortgage. If phoenix prices skyrocket, I'll sell a couple to take some chips off the table; if the market falls, I'll buy more. Expecting cash investors to suddenly sell into a weak market is tin foil hat level of lunacy.
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Seattle, WA
David Losh's website
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robertoaribas says
Where to begin?
First, Vestus lends for three to six months, they will lend what ever makes sense to them, because it is an auction property, and the other bozo, I mean investor is on the hook to get the loan paid off or they take the property. This is flipper heaven, and Vestus charges the up front fees, plus 14% interest. They have a steady stream of both capital, and investors.
So, the flipper investor can't sell, and yes the property goes back to Vestus, you win some you lose some, or the investor refinances and holds the property? No, most people are taking the loss and moving on.
Now, let's go on to where your properties have no mortgages, and you are willing to buy more property. How much cash do you have tied up? How much equity are you willing to lose?
I can see in every market that prices can continue to fall for a very long time to come. I don't think housing will be free, but do think that property pricing will come to twice the average income of an area. If you make $100K the price of property would be $200K.
OK, you want to play hard ball with me and say the price of property should be three times the average income, but I don't see it.
Do you have a construction company? or a company that repairs property? I have, and probably will again this year, and I know that anything built after 1986 is a problem waiting to happen.
I gotta go to work now, but will be back this afternoon.