In case there weren’t enough reasons for housing prices to stay low for many years, I recently read about one more. On August 2, 2010, I discussed the law of supply and demand concerning housing. One area of supply I did not include is this:
In many areas of the country, the percentage of home sales to absentee buyers has increased dramatically. For example, the LA Times reports that in the Inland Empire area of California the rate has increased from 19% at the end of 2008 to 30%.
In that area, almost one-third of all home sales are to investors who are planning to flip the houses. The good news regarding the influx of professional investors into buying property at auction is that they are bidding prices higher, building a bit of a floor under current prices. The bad news is that these houses will be back on the market in the next year and a half or so. Thus July’s reported 10+ month inventory (which will go higher this month for sure) is understated in the sense that all of these flipping houses (if you’ll pardon the term) are deferred inventory.
As we look out over the next several years, flippers will continue to add inventory as they finish rehabbing foreclosed properties they acquired. More supply means lower prices—all things equal.