Real Estate Recovery Myths

Like anything else, real estate has its urban legends and these can create fear, panic, paralysis, and all sorts of other decision glitches.

Myth #1 is that the market is recovering too fast with 12 of the 20 major metro areas experiencing yearly double-digit price increases. This has created the fear that the market's exuberance will lead to another steep decline. Here's the deal: markets have cycles, period. When an area's home values have been very depressed for extended periods of time, it doesn't take that vast of an uptick to generate double-digit percentage point increases.

That makes sense. I've heard investors are driving the demand, is that true or false?

The presence of investors, whether they're big Wall Street investment groups or Mom-and-Pop investors, are nationally responsible for approximately 20% of recent home sales. This is somewhat on the decline as home prices are stabilizing, thus putting a cap on the profit these investments can churn out. Buyer demand is actually increasing, as evidenced by increasing numbers of cash transactions, offers per property, and the speed of homes leaving the market. First-time-home buyers are responsible for 36% of current buyer activity and repeat homeowners over 43%. Investors have been active, but by no means are they solely responsible for creating the increase in buyer demand that now characterizes the market, so this myth is busted.

What about foreclosures?

I've heard it said that foreclosures are a thing of the past. Through the recession, many banks held hundreds of thousands of foreclosed homes off the market to avoid flooding it, depressing prices even further. These institutions continually trickle these homes, the so-called 'shadow inventory', onto the market, rather than creating a deluge of home inventory. We can expect to have a higher-than-average number of foreclosed homes on the market for some years to come, though the shadow inventory has declined over 10% nationwide between January 2012 and January 2013.

These myths are just covering a handful of misconceptions about the real estate market, but feel free to contact me as I'm more than happy to go into more detail about how it affects you!