Is Housing in Bubble Trouble?
Investors have been scooping up homes to rent or flip. Sound familiar?
Mark Vitner is a managing director and senior economist for Wells Fargo. He tracks trends in inflation and the U.S. housing markets, commercial real estate and regional economies.
The housing market nationally is well into recovery, with home prices rising strongly. Is another bubble inflating?
I am surprised at how much speculation has returned to an economy that paid such a heavy price for it not long ago. We have private-equity funds that have never owned or managed real estate rushing to buy homes because they have a potful of money -- at least $10 billion by my count -- and feel opportunity will pass them by if they don't buy right now. They hope to turn homes into rentals that they will eventually flip and sell.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What's the problem with that?
Investors seem to be overpaying for these properties. They've driven up the prices of foreclosures so much that it's hard to see how they will ever make a profit on them. They're outbidding prospective owner-occupants for homes that are more desirable than those that usually end up as rentals. When they run out of existing homes to buy, in some cases they're buying new homes at full retail price. They've pushed up home prices much faster than the economy's meager improvement so far can justify.
What are they betting on?
We had a tremendous surge in renters when the financial crisis started. Investors are betting that demand will continue because it’s hard to get a mortgage, say, or because young people prefer to rent. But in my view, the trend toward renting was mostly tied to the uncertainty of the financial recovery, and I think that story may have played out already.
So, will this result in Bubble 2.0?
I wouldn't call it that, but I do think home-price gains will top out soon and slow down later in the year. If the private-equity funds can't produce income from the rental or sale of these homes, they'll have difficulty attracting new investment dollars. When those dollars slow down or stop -- and that could happen soon -- home prices will hit an air pocket and come back down a bit, and that will be a setback for the economic recovery.
What's your advice for sellers or buyers?
It's a good time to sell. Increase your asking price and expect full-price offers. If you don't get them, just say no and wait for a better offer. For buyers, it's not worth getting into a bidding war with investors for a home. You’ll always find another house to "absolutely love."
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Get These 40 Earth Day Deals and Discounts
Monday, April 22, is Earth Day. Many of your favorite retailers are celebrating with deals on sustainable products, recycling services, and more
By Kathryn Pomroy Published
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published
-
Stock Market Today: Stocks Tumble After a Hot Inflation Print
Equities retreated after inflation data called the Fed's rate-cut plans into question.
By Dan Burrows Published
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation Reading
Equities struggled before tomorrow's big Consumer Price Index report.
By Dan Burrows Published