Flippers Bigger Part of Real Estate Market than Previously Thought
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As the real estate market slows some assumptions by the experts are becoming undone. The biggest error was the assumption that the resale, or flipping market, was smaller than it actually was. By building into a market that had a large percentage of froth at the top, the real estate market has built new homes for that higher level.
So now that the flippers are out of the market we are looking at a huge inventory glut in new homes and the market will have a hard time absorbing these homes at a time where in certain parts of the country are experiencing housing costs declines.
Investors were a bigger part of the market than many thought, including ourselves,” said Hovnanian, whose company builds primarily in the Northeast. Would-be flippers are not only not buying new properties, they’re selling what they already own, adding to the record number of homes already on the market.
Stocks in the sector have fallen dramatically. Wachovia last week cut its rating on builders including Pulte Homes Inc., KB Home and DR Horton Inc., citing a sharper more rapid downturn in the market than expected.
Developers have started canceling projects. Plans were scrapped last week for a 4,400-unit Las Vegas condo resort complex. The development company for the project said rising construction costs and slow sales forced it to rethink the plan.
Buyers in some cooling markets know they’re in the driver’s seat.
Rachel Moehl, a real estate agent with Weichert Realtors in Jersey City, N.J., said she almost saw a deal for a three-bedroom condo fall apart over what proved to be a $400 problem — moisture between window panes.
There was a four-month supply of unsold homes on the market in April 2004; it rose to 5.8 months in April 2006, according to the Department of Commerce.
Part of the backlog is 128,000 unsold new homes, the highest level in history, said Mario Ricchio, housing analyst at Zacks Investment Research, Chicago via AP
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Comment by Remerica Somerset Realty on 20 September 2006:
It’s sort of like the stock market at the time of the dot com boom. People didn’t realize at the time that part of the reason the segment was doing so well was because of the investment money itself. Once investors started to pull out in favor of stocks like biotech, there was total collapse of internet technology stocks.
Dave Halliwill
Comment by Diane Cipa, General Manager, The Closing Specialists® on 8 December 2006:
The pendulum swings take a long time in the real estate and mortgage world. Speculation in a heated market is just as predictable as the bust that follows. It takes years to see the cycle and learn good risk assessment. Few lenders have old timers on staff guiding their decisions or going for the gold, ignore them.
Making hay while the sun shines is the right thing to do, but set something aside for the rainy day that surely will follow. [I know that sounds cornball, but the cliche fits. ;)]