Don’t tell the stock market, but many parts of the US and global economy have been rolling over for months, and now that may include the housing market. From Tyler Durden at zerohedge.com:
With the S&P500 hitting new all time highs every day, one question that has emerged is whether this newfound “paper wealth” is finally trickling down into the US housing sector which still has to surpass its pre-crisis levels.
Alas, a new report shows that a new threat is emerging for US housing. Or rather, an old and very well-known one: house flipping by third party investors at auction is back with a vengeance. According to RealtyTrac, the share of foreclosures snapped up by third-party investors at auction just hit a record 31% in June. This is a redux of the “same fervent speculation that pushed the housing bubble.”
Call it Red Flag #1:
As Bloomberg puts it, “almost nine years after the housing-market bust helped trigger the most recent recession, RealtyTrac senior vice president Daren Blomquist sees the industry waving a red flag.”
According to Blomquist, many of the third-party buyers are inexperienced “mom and pop” investors with less experience, said Blomquist. At the same time, institutional investors, a subset of the third-party investors who purchase at least 10 properties a year and who are more familiar with the nuances of market supply and demand are ducking out of the market.
“It’s somewhat counterintuitive — as the market gets better and there are fewer foreclosures available, demand for those good deals, those bargains in the market goes up,” said Blomquist. “When you see this high percentage of the properties going to third-party investors, that is a sign that these speculators may be over-inflating the market.”
Bloomberg adds that the third-party investors are gaining a bigger share of a shrinking pie, as foreclosure auctions made up 8 percent of all home sales in June, the lowest since August 2006. Meanwhile, institutional buyers made up about 38 percent of those investor purchases at foreclosure auctions in June, down from a steady trend of around 50 percent in the first five years of the expansion, the data show. They accounted for 2.5 percent of all home purchases in June, down from a peak of 9.8 percent in February 2013.
While investors at foreclosure auctions could rely on about a 40 percent discount from the previous sales price in the early years of the expansion, this year they’re only garnering about a 30 percent markdown, Blomquist said.
“The pressure is building in the pressure cooker, and at some point that’s going to need to be released,” Blomquist said. There’s a little time — “probably not in the next month or two but in the next couple of years,” a downturn should set in, he said.
Overall, the housing market looks great so the latest data showing a rise in speculation by non-professional investors was an early warning signal, Blomquist said. “Real estate is cyclical — it’s not this steady trend upward.”
Why is this a red flag? Because the same kind of decline in institutional buyers was a dramatic harbinger of the last downturn as more seasoned stakeholders headed for the sidelines.
“Their analytics are telling them it’s not a good time to buy — that’s definitely another red flag that they’re pulling back at the same time as the less savvy investors are ramping up,” he said.
To continue reading: Three “Red Flags” That US Housing Is Starting To Roll Over