Sudden Rise in Home Demand Takes Builders by Surprise

As welcome as a long-awaited improvement in the American housing market may be, the unusually low level of homes for sale is creating problems for buyers and sellers alike.

Comments: 31

  1. "Investors large and small have also scooped up most of the backlog of foreclosures and short sales; about 40 percent of all homes bought in Sacramento County over the last year were purchased by owners who currently live at a different address, according to county records and title data provided by the Fidelity National Title Insurance Company."

    This is a very important fact.

    I can't help but wonder how many of these investors are among the infamous "one per cent" who have almost unlimited money right now and are looking to diversify. If you've got a billion or multiple millions in assets, snapping up foreclosed homes makes a lot of sense.

    Until we know how much of this real estate boom is fueled by the very wealthy looking to move into real estate, it's impossible to know just how "real" the recovery is for ordinary persons.

  2. Sarah S,
    Yes, I think you are correct.

    I read Case-Shiller "Housing Views" blog. Last month or the month prior, they said that the new home building and sales growth was in high-end homes primarily. The NY Times wrote about that too, though not in this briefer article.

  3. I think we are taking the One Percent thing a bit far. If you are sitting on a billion dollars the last thing you aren't craving becoming a landlord for individual rental properties. You may buy publicly traded builders or invest in residential real estate mortgage securities, but being responsible for the water heater blowing up in a Duplex in Sacremento is not how you become part of the financial elite!

    The market "recovery" is all relative. Articles like this use the base point of the last 5 years, which have been dreadful, as opposed to the previous bubble. "Up 20%from last year" sounds a lot better than "Down 60% from the peak". Of course there is the obligatory real estate agent saying "I have never seen anything like it" and "It's a great time to buy" but hopefully by now we see that as the patter of any commissioned sales person.

    The market is becoming less unhealthy, which is good. We need it to improve for all sorts of reasons, but without 15 million sub prime borrowers being pumped in to the bottom and mortgage lending practices going haywire again, it isn't going too far. Whatever unemployment number you choose to believe the majority of Americans are employed and still need a place to sleep tonight. New Homes will start to get built but all of those underwater homeowners who have been stuck unable to move for the last 6 years now will provide plenty of inventory as prices recover.

    Keep calm and carry on.

  4. "...the infamous "one per cent" who have almost unlimited money right now and are looking to diversify..."

    What are you talking about?

    You think billionaires are buying up foreclosed homes that have been left untended or have been gutted to "diversify". Billionaires invest in real estate developments and luxury (>$10MM) homes/apartments, not foreclosed homes in Sacramento.

  5. Visit Florida and you find many home owners from Latin America. Many other home purchasers are from Asia. As the baby boomers age they will buy more condos or rent apartments.

    If the building of new homes increases, you can thank the Federal Reserve solely and not the federal government which has yet to establish mortgage standards, control bank lending similar to avoid sub-primes and trading & pricing of mortgage pools & other real estate derivatives.

  6. One of the most important questions, I'd suppose, is whether people who are looking for houses to LIVE IN can buy houses. For a long time, the answer was 'no' because of the financial losses and economic 'downturn' that slammed everyone hard but the richest folks, who had all sorts of cushion and (in many cases) the opportunity to benefit handsomely from others' suffering.

    And now that middle class families are seeing SOME recovery, well hey, guess what? Once again the uber-rich and their concern to make investments that continue to benefit themselves by putting the screws on everyone else are back in full-throated song. In this neck of the woods--eastern LA county and the Inland Empire--the vampires, er, excuse me, the 'investors' have been eagerly buying up the inventory as it becomes available. They've moved on from foreclosures and short sales, and gone back to flipping houses: Friends who have been looking for six months have seen houses sold immediately, and then come back on the market a month or two later with cheesy kitchen 'upgrades' (that they did not need) and a greatly elevated price.

    Did anyone learn anything from the last housing bubble and bail-out of the uber-rich? Not the rich predators--excuse me, 'investors'--who seem thrilled at the prospect of, once again, reaping windfall profits at others' expense. If anything, they've learned that there really are no bounds to the sort of predatory capitalism and greed they can practice.

  7. Why don't we work to change the laws that allow such profiteering? Perhaps it should be more difficult to use housing as an investment. Simply decrying what the law allows will not change anything.

  8. If the money is that easy and the game that simple, why don't you beat the rich predators at their own game? Wouldn't you be doing both society and yourself a big favor if you bought and renovated housing in a non-cheesy fashion and then gouged your buyers just a little bit less than the so-called vampires?

  9. As a paint contracter in California, all I see so much optmistic churning.
    No one will pay a fair rate for labor either.
    Once again if wages do not go up first,
    real estate values are fake & lead to bubbles.

  10. I agree, a real recovery is when the wages creep up.

    There is too much competition for these lower paying jobs and that situation is not being helped from our friends who come from south of the border. I'm sorry people have to pay a living wage for an American wheth

  11. ...whether for a paint job or picking fruit.

  12. This article provides one of those rare good news stories. The housing market is exploding, and construction is scrambling to keep up with the demand.

    Analysts note that inventories are at an all-time low, so much so that people who want to sell their homes are waiting because they are unsure about finding a new place to move into. And with such an increase in construction, skilled workers are scarce, and local governments don't have enough to people handle permits and the paperwork required.

    Moreover, most of the distressed sales such as foreclosures are cleared off the market, providing one more indication of the strength of the recovery. This is a good problem to have. More people want to buy than there are homes to sell. Though mortgage rates are currently low, soon that might change as well.

    The strength of the housing recovery will have an effect throughout the economy and will help to spur growth in a number of industries. After a long, gloomy recession, it seems like spring is just around the corner, both literally and figuratively. With a booming stock market and a revived housing industry, improvement of the unemployment rate must be just around the corner. (Visit http://www.cioediting.com/wordpress and click the category "mortgages" for related analyses.)

  13. Here in Las Vegas, the median home price went up 27% in the past year. This was caused by building lots of new houses, which are over-priced for Las Vegas, but seem very reasonable to foreigners and people from other states, who are buying them up. But if one really shops for a house in the Las Vegas market, the prices are much lower for many homes. Realtor hype and the fear of moving to a new area seem to be working very well.

  14. In GA and FL homes have been bought up in blocks over the last 4 years - hard to even buy a foreclosure now, but there are still short sells.

    What some don't seem to understand, maybe because the media isn't reporting in depth, is that these blocks of homes are not being bought by the 'super rich' in the US, but instead by investors from Latin America, Eastern Europe, and Australia. Our country puts no limits on these investors that come in, pay pennies on the dollar, fix up a home just enough to rent, and then sit on the property. They do not improve the landscaping or maintain the home from a curb appeal perspective.

    In short, we have people all over the globe that have grouped together to buy blocks of homes around this county, with a borrowing rate of next to nothing, that have the potential to take billions out of the US with minimal risk due to no regulations on foreign ownership of homes.

    WE DON'T NEED MORE HOMES BUILT, we need some limits on foreign ownership and we really need the FED to re-visit this rediculous prime rate of 0% that only hurts those saving, retired, and living within their means.

  15. Many missing points from this article, which apply in particular to the Las Vegas housing market:

    1. We still have tens of thousands of homes that should be on the market but aren't, because the bank does not have the documents to foreclose, and is making ridiculous counter offers on short sales. Many have been in their homes 3-4 years since making their last mortgage payment.

    2. AB 284 - http://ag.state.nv.us/publications/bills/ab284/ab284facts.pdf

    3. What few homes are available for sale under $250k are being snapped up by cash buyers (i.e. investors), leaving scant inventory for everyone else.

    This is a bubble that will burst as soon as the investors realize they can make better returns elsewhere.

  16. Buyers need to resist the land rush. Real estate agents and sellers are whipping up a frenzy over this short-term, temporary shortage of inventory, offering the promise of higher and higher price appreciation over the next few years. It sounds like 2007 all over again and we know how that turned out.

    The middle class is still the engine for housing and until we get that sector going again, I don't believe you're going to see any significant rise in home prices. And as for inventory, wait until next week's holidays are over and then see if additional homes don't come flooding onto the market.

  17. And yet just a week or so ago the National Association of Homebuilders reported that their membership was "less positive" about the market than they had been the month before. What's going on????

  18. How do you make money to buy a house - work, save and invest to get growth in savings. What has the government done re: better paying :jobs - "nada", prevent splitting jobs by employers to avoid paying benefits - "nada", higher interest rates on deposits -"nada",

  19. Nice but lets look at this again in 18 months and see if the trend actually sustains itself. There is still tons and tons of foreclosed or distressed inventory out there folks.

  20. What I like about the comments I've read here, and in other articles/posts about recent tech IPOs is that a good segment of the general public, the segment that at least tries to keep their ears to the ground, aren't taking the "we promise THIS time you'll get rich" bait.

    Eventually the Fed won't be able to pump cheap (free) money into the economy, and eventually government debt will catch up to our ability to pay to service it. When that happens there will be another severe reassessment of where we stand...and all you can do is hope you don't make any major life decisions at the apex before the dive.

  21. How much of this is investor related? I find it interesting that in our area we have thousands of homes in foreclosure and yet only a few homes make it to the market...after an investor (usually foreign) has purchased it and "flipped" it. Many houses are not even offered to the public until a private investor has been offered the opportunity to "flip" it.

    I see another bubble growing in our midst.

    I will reserve my optimism until I begin to see some real reform in the housing industry and the RMBS that is attached to it.

  22. There is an investment company out of NY buying up foreclosed homes and converting them to rentals out where I live. Talk about the 1%. It's how they do it. The average person who wants to be a flipper or own a rental himself can't compete with that.

  23. Not so fast.

    Millions of Americans are living in free housing because they have not paid their mortgages yet are still living in their homes.
    What happens when they are finally evicted or have to start paying for housing again?

    Billions of dollars have been poured into buying foreclosed homes by funds like Blackstone, who say they will fix them up and rent them.

    This means there are less homes available for sale and MORE homes available for rent.
    While prices are shot up in cities like Phoenix by some 35%, rents in those same cities have come down, due to increased competition.

    This reduces the yield on all rental homes, those owned by mom-and-pop landlords as well as mega-owners like Blackstone.

  24. Phoenix doesn't mean diddly!

  25. To chrisnorton66

    Yeah, like the very wealthy who buy up dozens or hundreds of homes as investments are going to act as landlords themselves! You think they'll be painting between tenants and calling the plumber? Right!

  26. We should accept good news and hope for the best. This recovery matches the stock market, and today's good news in Israel. Credit where credit is due: The Obama Recovery after the Bush disasters.

  27. Another one of those feel good stories to help the realtors but has no bearing in reality. Empty homes everywhere and no buyers, banks being amazingly critical in giving loans, and no one with a job to pay the mortgage. Yep, recovery is on the way for sure!

    In the meantime the present White House occupant is talking about importing foreign workers to help the job situation while under trained and semi illiterate Americans sit on their butts and try to collect more government money.

  28. What about the huge reservoir of foreclosed properties being held by banks and mortgage lenders which have NOT been put on the market? Opening these flood gates could rapidly change the available home stock, and drive prices back down. Clearly, holders of foreclosed properties have been waiting for home prices to rise so they can get the max value from the properties they hold.

  29. This is one of those happy "crises" of nascent prosperity --- demand for housing outstripping supply! But it is tentative --- if the budget hawks' (the same ones who spent Bill Clinton's Surplus, accumulated deficits and brought on the Great Recession) spending cut spree is not checked and the 'sequester' withdrawn.

  30. I've been looking in/around UWS and finally am seeing a few more properties being listed, but not many. I even ventured onto craigslist hoping someone would see my posting. Next step posters at bus stops? (kidding, sort of)

  31. Lots of foreclosed homes in Manor, which is close to Austin, Texas! That's where I'll be buying my first, and last, home!:)