Monday, July 20, 2015

WSJ: "Bidding Wars Return to Home Market"

by Bill McBride on 7/20/2015 05:27:00 PM

From Kris Hudson at the WSJ: Bidding Wars Return to Home Market

Bidding wars, a hallmark of last decade’s housing boom, are making a comeback in a number of metro areas across the U.S. But while the earlier wars reflected enthusiasm fueled by easy-money mortgages, the current froth stems from a market short of homes for sale.

The reasons for the scant supply are myriad, including a much-slower-than-expected recovery in home construction. Yet an equally significant problem is that millions of people aren’t listing their homes for sale because they suspect they can’t qualify for a new mortgage, can’t afford the costs associated with a sale or fear that they won’t prevail in the scrum for the few houses available.

At the end of May, there were 2.3 million existing U.S. homes for sale, enough supply to last 5.1 months at the current sales pace. That is below the six to seven months of supply that the National Association of Realtors says is needed for a balanced market.

But in more than one-third of the 300 largest metropolitan areas tracked by, homes listed for sale in June had been on the market for a median of less than two months. A low median figure indicates rapid turnover in inventory as demand for homes exceeds supply.
There are number of reasons inventory is still low, even with higher prices. People shouldn't overlook the obvious impact of investor buying on inventory. Three years ago I wrote:
One key is the substantial increase in investor owned single family homes. These are not "flippers", but cash flow investors - and these investors will not sell just because prices have risen a few percent (I've talked with some of these investors, and they many are making 8% to 12% cash-on-cash after expenses - and they have no intention of selling in the near term). Economist Tom Lawler discussed this back in February, and concluded that a significant "share of the decline in the share of homes for sale reflects the acquisition of SF (and condo) properties by investors as multi-year rental properties".
Investor buying has slowed, and there has even been some selective selling:
Blackstone Group LP’s Invitation Homes, after spending more than $9 billion in a U.S. property-buying spree, is starting to sell some houses as it shifts focus from rapid expansion to fine-tuning its holdings.

The housing landlord has agreed to sell about 1,300 Atlanta-area residences that don’t fit its strategy, which targets communities with higher rents and quality schools, according to Chief Executive Officer John Bartling. The transaction would be the biggest bulk sale for the 3-year-old company, the largest U.S. owner of single-family homes.
So maybe we will see a little more inventory.

• At 10:00 AM ET, the Federal Reserve will release the Annual revision for Industrial Production and Capacity Utilization

• Also at 10:00 AM, Regional and State Employment and Unemployment for June.