In an earlier post we discussed the relationship between a decrease in inventory and an apparent shift to a Seller’s Market. Further data raises the question as to how long this condition will remain. Based on recent reports, it appears as if this shift was largely investor driven.
Radar Logic reported home prices in February showed a month-over-month increase, the real estate data provider sees this trend as possibly being temporary, considering that warm weather and investment buying helped to drive up sales. Home prices increased 1.9 percent over the month ending February 16, according to Radar Logic’s RPX Composite Price, which tracks 25 major metropolitan areas. This increase was bolstered by strong sales in February. Sales transactions for the RPX Composite increased 22.9 percent month-over-month and 16 percent year-over-year through February 16. “We believe that investment buying and mild weather are contributing to this strength, and both may be temporary,” the Radar Logic report stated, which was authored by Director of Research Quinn W. Eddins.
In Los Angeles, corporate investor purchases increased 421 percent compared to a 36 percent increase in total sales. The result of increased investment activity has been argued to reap both benefits and disadvantages for home prices. According to Radar Logic, investors, who are primarily interested in REO properties, buy homes at a significant discount, depressing the aggregate price for houses. “Moreover, investor purchases of distressed properties at heavy discounts have hurt the values of surrounding properties by providing appraisers with low-priced comparable sales,” the report stated.
On the other hand, the influx of corporate investors into metropolitan housing markets, particularly those with high concentrations of foreclosures and large REO inventories, could strengthen aggregate home prices as people become aware of the fact that investors are buying up properties in large quantities, according to the report. Sellers could then have a strong incentive to raise their prices, which could start to firm prices in the market, Radar Logic explained.