The Wall Street Journal
16 October 2013
The sharp home-price rally in some of the hardest-hit housing markets is likely to fade in the coming months amid a pullback in investor purchases and steady increases in the number of homes listed for sale.
Three markets in particular—Phoenix, Las Vegas, and Sacramento, Calif.—have witnessed surprisingly strong home-price inflation over the past 18 to 24 months.
For the three months ending in July, home prices rose 27.5% in Las Vegas from the previous-year period, according to the S&P/Case-Shiller index, the largest gain for any of the 20 cities in the index. Prices in Phoenix gained 18.9% from one year ago and 39.1% since September 2011, the best of any of the 20 cities in that span.
The rally began in early 2012 after investors aggressively bought up cheap foreclosed homes that can be rehabbed and flipped to end users or rented out to those who aren’t ready or able to buy, clearing an overhang of distressed properties. Meanwhile, many traditional buyers couldn’t sell their properties because they owed more than their homes were worth, keeping inventories very lean. As home prices warmed up and interest rates fell to rock-bottom levels, traditional buyers got in on the game, releasing pent-up demand.
Now, housing data is showing that the brakes could soon hit such sharp gains:
Phoenix: Investor purchases fell to 20% of sales in September, down from 29% a year earlier, and purchases by nine major institutional investors dropped to 110 sales, down 72% from 398 sales one year ago. Just four of the nine investors bought homes in September, compared with all nine one year ago. Second home purchases dropped by 23%, but purchases by owner-occupants increased by 21%, according to the Arizona Multiple Listing Service.
There were 2.5% fewer homes sold in September compared with a year earlier, even as the number of homes for sale increased by 9.4% over that span, according to the Arizona MLS. At the current pace of sales, Arizona had 3.7 months of supply, up from 3.5 months a year earlier.
One major bright spot: There are few signs of any shadow inventory of foreclosures hitting the Phoenix market. Distressed sales were down 59% from a year earlier.
Sacramento: The number of homes that sold in September fell by 6.8% from a year earlier, and the number that went under contract fell by 3.6%. Listings jumped by 40.3%, according to TrendGraphix Inc. Median prices rose by 1.2% from August and by 36.1% from one year earlier.
Las Vegas: The share of homes that sold in cash last month stood at 47.2%, down from 54.8% in August and one year ago, and down from a high of 59.5% in February, according to the Greater Las Vegas Association of Realtors. Many cash buyers tend to be investors.
Home sales were down 1.2% from a year earlier, even though there were more homes for buyers to choose from. The number of single-family homes listed for sale, at 14,659, stood 12.6% below last year’s levels, but the inventory of “non-contnigent” listings—homes that don’t have any offers and aren’t under contract—was 60.5% above year-earlier levels. The median sales price in September fell for the first time in 19 months.
In Las Vegas, buyers earlier this year found themselves regularly losing out to investors amid tight supplies of homes for sale. Now, “the market is softening tremendously,” said Bryan Lebo, a local real-estate agent. “Buyers are becoming a lot pickier. They’re more patient.”
In some neighborhoods, he says, homes are now selling for 10% less than they were just a few months earlier, and builders are beginning to offer generous incentives, such as home upgrades to buyers and commissions to real-estate agents, in order to stay competitive.
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