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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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."
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for Fall Rate Cuts by the FedThe probability the Fed cuts interest rates by 25 basis points in October is now greater than 90%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Amazon Resale: Where Amazon Prime Returns Become Your Online BargainsFeature Amazon Resale products may have some imperfections, but that often leads to wildly discounted prices.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
