Expects Housing Rebound to Continue
In a series of weekly blogs, analysts from John Burns Real Estate Consulting remain mostly optimistic about the housing rebound, but raised caution flags about flippers.
"We are advising our clients in areas with a high percentage of flippers to take into account the risk of artificial price appreciation," stated a company vice president. "While successful flips are more likely to be reported than unsuccessful ones, the profits described to the public wildly surpass the reality of the recovering market."
In other highlights from recent posts, representatives from Burns noted:
- 47 percent of home builders raised prices in August, down from 64 percent the prior month.
- Second home market remains strong.
- The opportunity to buy homes below replacement cost is mostly gone.
- The fundamentals for continued price appreciation are very good in the majority of markets, but be cognizant of the fact that artificial demand - flippers flipping to other flippers is the ultimate artificial demand - can distort markets.
- Demand exceeds supply in 90 percent of the "top 20" markets the firm analyzed.
- The premium for new homes is abnormally high.
- Entry-level buyer activity is slowing down, not because of rising mortgage rates but because the most qualified buyers have already purchased.
- Mortgage lending is only getting slightly more aggressive and won't heal completely until the Dodd-Frank QRM rules get defined.
- Home sizes are rising because that is what consumers still want. While some older buyers are choosing to downsize and first-time buyers are being forced to buy a smaller home, the number of people desiring larger homes is much greater.
- The recovery is still occurring but at a more normal pace.
John Burns Real Estate Consulting is an independent research provider and consulting firm that focuses on the housing industry. Its clients include builders, developers, banks and lenders, investors and building product manufacturers. The company is based in Irvine, Calif.