Real Estate Investors, Are They Getting Out or Just Moving On
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Builders thought they were building for homeowners in hot spots such as Florida, Las Vegas, and parts of California. In reality, the true market drivers in these areas were real estate investors who were constantly trying to time the markets. When the investor class pulled out of the market, a huge overhang of inventory of newly built and empty inventory that could not be sold developed.
But what is the real estate investor class doing right now? Obviously some of them got caught and are out of the game or licking their wounds. When looking at how housing prices outside of the hot spots previously mentioned they are not drastically down, and in two thirds of the major markets still increasing. Could it be the investors have pulled their assets (and gains) by moving to new territory to invest in?
This is pure speculation but I think that years ago, real estate investors were tied to their hometowns. Now with the combination of cheap travel, technology to manage their assets, and a infrastructure designed to facilitate remote buyers, the real estate investor class is much more mobile.
So if Florida is tapped out, why not try Birmingham, Alabama. Southern California gave me a great nest egg, lets head out to Boise, Idaho where things are going strong. Again, this is speculation but watching housing appreciation, the investor dollars must be driving part of that when other market forces are pushing in the other direction. If investors flock to an area and put pressure on inventory, then housing will appreciate. If they pull out of an area, they leave a vacuum and pricing gets hurt.
Due to the various factors impacting California housing prices, it’s likely that investors won’t see returns on a real basis for an extended period of time. As California moves through the mortgage/real estate chaos, one of the more interesting changes is to the real estate investor psychology, as the mood shifts from “only in my backyard” to one where investing is properly viewed as a “buying in fundamentally sound markets — wherever they may be.” via Earthtimes
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Comment by Kathleen on 13 September 2007:
There is a difference between real estate investors and speculators. An investor stays in the market, but goes with a different strategy when making offers. A speculator usually counts on fast short term appreciation, and often buys at near retail, but early. Speculators are the ones that have to move out if there is little appreciation.
Comment by Sock Puppet on 13 September 2007:
I think you’re missing Tom’s point a little here Kathleen. The investor and speculators say in San Diego both get out of San Diego. The speculator doesn’t go back into the San Diego market until it suddenly heats up again in say 15-20 years (or whatever).
The Investor class however just quit San Diego completely. Some were getting out 6-12 months ago. Some are already gone. Then they head over to Kansas City or Boise and the investment money never comes back to San Diego (in any form) again.
So in short… places like San Diego are really going to get hammered back down to the median growth or even slightly lower as the overall demand for housing in San Diego drops with the exit of the investor class.
I.e. “It’s pretty bad”.
-Athol
Pingback by The Feed Bag on 13 September 2007:
[...] Royce makes a great point that real estate investment is now a whole lot more mobile. Real Estate Investors, Are They Getting Out or Just Moving On? Required [...]
Comment by Jeff Brown on 14 September 2007:
Athol has it mostly right.
The only point with which I’d quibble, is what will ultimately happen to the demand for San Diego housing.
The so-called investor class hasn’t bought SD homes for investment since Moses’s son died.
They’ve been buying residential or commercial income properties.
I had dinner last night with a hi-tech guru who happened to own a pretty well located investment condo in the Fashion Valley area of SD. It’s now worth roughly $550K. It rents for $2,200 monthly. He’s breaking even after expenses - with a 50% LTV! When he bought it, (Moses was still in short pants.) He put 10% down and it broke even.
Investors in San Diego have had little or nothing nada zip to do with the price of SFR’s for quite some time.
What’s driven them up over the last couple decades has been (not by itself) the seemingly never ending inflow of folks from outa town. In fact, we literally tripled our population in about 30 years.
Try that in your area and see what happens to your median home prices. Supply and demand is a wonderful thing.
Pingback by The Feed Bag - Refried and Served Again on 16 September 2007:
[...] Tom Royce makes a great point that real estate investment is now a whole lot more mobile. Real Estate Investors, Are They Getting Out or Just Moving On? [...]