Are We Already Blowing a New Housing Bubble?

A new Wall Street Journal report and data from the National Association of Realtors shows a large percentage of the new housing surge is coming from real estate investors. Does this mean we are already headed for another bubble and what will this do to the stability of the real estate market?

New statistics show a jump in sales to real estate investors of 64.5% last year and 7% rise in vacation home buying. Many real estate investors are buying more than one property and some parts of the country are seeing a big surge in both prices and transaction volume.  However, this activity is a lot different to what we saw in the early 2000s.

For a start, there is far more regulation than ever before and appraisals and lending are clearly tougher. Plus, a large percentage of these buyers are paying cash or at least taking advantage of extremely inexpensive financing. Real estate investors are also turning over many of these properties incredibly quickly, so they will not be a risk later on. Those acquiring rentals are doing so at record cash flow levels and spreads which they will be able to maintain regardless of future value fluctuations providing they don’t milk all of the equity from them when they go up. Plus, the large percentage of foreign real estate investors in the market provides additional security and diversity as even if our economy struggles not everywhere in the world is likely to be in a crunch at the same time.

In contrast to the speculative boom running up to 2005 the current surge is seeing huge chunks of the country are being turned into long term rentals. This will mean lower inventory for years, likely decades helping the market to absorb new construction and propping up home prices.