The data coming out on home prices is rather clear. Home prices are moving up steadily in the last year now increasing at a rate last seen in 2006. Of course, little of this is coming from wage growth but more from easy access to debt, investor demand, and historically low supply. One thing that people fail to remember is that during the last housing bubble, people were supplementing a lack of income growth with easy access to debt to add fuel to the housing market. This time, the easy money is being supplied to banks and hedge funds that are simply chasing higher yields. Anyone that has a hand in the housing business, especially in the grind it out rental business understands that it is no hands off endeavor. This is why it is surprising to see how much money is now being funneled into the market by brand new small time investors, especially in places like California. You know things are getting frothy when new money is willing to chase the rental business.
Foreclosures are still relatively high but what makes things appear to be better comes from a couple of fronts. First, foreclosures are being purchased at a faster rate by investors and some are doing this at the courthouse steps under a Nevada sun or rolling storms of Florida. So many do not make the MLS where the public can view them. The low supply has definitely pushed prices higher. What is interesting is the jump in pre-foreclosures. Part of this has to do with moratoriums that occurred over the last few years in a handful of states. It looks like banks are now deciding to move on more properties given that the market is now prime for this. Low supply and higher prices will make it a more lucrative venture to move on some of the pending foreclosures. This is a reason pre-foreclosure activity, the first step in the foreclosure process is up by 200,000+ from last year. It is useful to also look at home prices in relation to inflation. Let us first examine the foreclosure situation.
The good news for our inventory starved nation is that supply is indeed increasing. The trend is positive this year and it is starting to look like we reached a bottom when it comes to the lack of inventory. The only caveat in this is that it is unlikely to be in an area where you are looking to buy. Now we have readers from all across the country and the positive news is that the pressure valve might be opening up this year when it comes to the selection of homes. Yet we also have a large contingent of California buyers looking to buy in very select markets. There is little indication that inventory is coming back here and some of these markets are actually making new or close to new record highs when it comes to prices. Let us first look at the change in nationwide inventory and then target a few prime SoCal markets.
Quantitative easing is unlikely to get any airtime on the local press but this is the overarching policy that the Fed has enacted to pull us out of the recession. What many people do not know is that Japan is ahead of the curve when it comes to enacting quantitative easing to deal with a collapsing real estate bubble. The Bank of Japan has made news this year by aggressively expanding their monetary base to spark some sort of inflation in their underlying economy and subsequently weakening the Yen. The Yen has gotten weaker relative to other currencies and the Nikkei is up 30 percent for the year. One of the bigger questions around quantitative easing and Fed policy is the longer term impact on our economy. Housing prices have moved up because of three major reasons; investor demand, low supply, and historically low interest rates. Each one of these reasons can be traced to the Fed either directly or indirectly. Can an aggressive central bank with a low rate environment re-inflate asset prices?
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