WTF?!
(Where's The Financing?!): Is the Current Real Estate Market Recovery Sustainable?
Many industry experts believe it is. Initially thought to be an anomaly, the current housing market recovery seems to be sustainable. In a recent article in DSNews, analysts for Capital Economics feel the current uptick in the housing market will remain sustainable for the foreseeable future. Though this rapid recovery took many analysts by surprise,there are several major indicators that suggest the current recovery is more than a flash in the pan.
Sustained rises in demand, home prices and homebuilding activity along with new and existing home sales demonstrate lasting recovery. These same analysts are also predicting a price growth of 5% for 2014. According to CoreLogic, the Orlando residential real estate market saw a residential median price increase of 10% in the last twelve months. The biggest threats to this continued growth, according to analysts, is the country falling in to another recession or the release of the current shadow inventory (currently estimated at 3.8 million properties, 1.5 times larger than the current number of active properties for sale) both of which seem unlikely. Concerning the shadow inventory, it would not be beneficial to the banks owning them. A flood of properties on the market and a dramatic drop in property values would not benefit anyone.
Though these major threats do not seem likely, there are larger issues to consider. The current real estate market is being sustained primarily by investors and cash buyers. According to the Florida Association of Realtors, more than half the homes purchased in Florida were cash deals. The concern here, especially with the large investors, is when property values increase, so do the deep discount opportunities that investors look for. ROI is the name of the game and when those deep gains evaporate, so does investor interest. Florida does benefit in being the most popular state for foreign investors which almost always pay cash. Financed buyers, on the other hand,have been a very small player in the national market and in the Orlando real estate market as well. Increased financed transactions and loosened credit restrictions go hand in hand. To allow the financed buyer back in the market, relaxed credit restrictions must inevitably occur.
My own personal experience for the last four years, both the Orlando and Tampa Bay markets, leads me to believe that property values and market recovery will be slow but positive. I initially was in agreement that this was just an positive hiccup in the market and when the large investors began to slow their buying pace, the market will slow as well. However, I have not seen this. What I have seen is increased buyer activity, receiving multiple offers at asking price or higher on many of my listings and an increased interest in new construction. Don’t get me wrong, there are still deals to be had out there, especially for cash buyers but they are significantly more scarce than they were two years ago.
All in all, I agree with the analysts that the market is recovering and will continue to recover. I don’t see any dramatic rise in property values in the near future but rather a more slow and steady rise to recovery.
What are your thoughts on the analysts forecast?
-Rob Sassos is the Broker/President of Simplicity: A Real Estate Brokerage Company. Simplicity specializes in residential real estate and property management in the Orlando and Tampa Bay markets.