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Home Buyers Compete with Wealthy

Housing Shortage?


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By Joseph Carducci
Friday, May 3rd, 2013

Even if home buyers are qualified, many are discovering a puzzling trend: they cannot seem to find a house to buy! This is even true for buyers who have already been pre-qualified for mortgage loans.

housing planIn many hot housing markets, it can take months of active searching and offer placing to make a purchase. This is despite the fact that not long ago, homes weren't selling.

Now average folks are finding themselves left out in the cold while big investors swoop in, cash in hand, to claim all the desirable properties.

Declining Inventories and Rising Prices

The inventory of available homes is declining all across the country. Recent reports indicate that the number of homes available for sale is sitting at 13 year lows. Prices have rebounded and are currently up about 7 percent since last year.

What is fueling these trends? And just who exactly is scooping up the homes that are for sale?

For starters, while the shake-out over foreclosures may be improving, an estimated twenty percent of all homes are still underwater. These homeowners, who are carrying a loan for more money than the house is actually worth, simply cannot sell.

Wealthy homeowners and home buyers still have access to a number of deals. Many real estate brokers and agents are engaging a technique known as “pocket listings.” As CNNMoney explains, this is when a potential home sale is kept private, with the agent or broker working quietly behind the scenes and offering the house to his own personal clients (or working in cooperation with other agents to “place” the home with a well-heeled buyer).

This is sometimes done for privacy reasons, if the homeowner doesn't want to deal with a number of onlookers waiting outside the home each morning. 

But the number of investment firms looking to real estate, particularly single family homes, has dramatically increased in the last few years. With all the easy money available from the government, many of these firms see real estate as a tremendous opportunity. 

Such firms have bought at least 55,000 single family homes across the U.S. last year.

Best and Worst Housing Markets

Nationally, housing prices have risen approximately 10 percent over the last year or two, although specific markets have seen price increases of as much as 40 percent. Purchase statistics also show that 60 percent of these sales are all-cash deals.

Some of the toughest U.S. housing markets these days include major metropolitan areas like New York City (especially Manhattan), Los Angeles, and San Francisco. However, things are also difficult for potential home buyers in Austin, TX, Seattle, Las Vegas, and Washington, D.C. 

But the news is not all bad for those looking to buy a home. Some cities have also seen an increase in the number of home listings combined with price decreases. Realtor.com's list of the top five markets for buyers includes Ocala, Florida (3 percent listing growth), Huntsville, Alabama (4 percent listing growth), El Paso, Texas (over 4 percent growth), Springfield, Illinois (5 percent growth), and Shreveport, Louisiana (with over 17 percent listing growth).

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Investors Should Act Quickly

With the supply of available homes being gobbled up quickly by large investors using easy money made available by the banks and government, prices should continue to rise.

Of course, this is dependent on the continuation of current policies. As long as the Fed does continues its quantitative easing (i.e. printing more money to pump into the economy) that would likely mean the continuation of all these trends for the foreseeable future.

As an individual investor, a great way to profit from these conditions would be to consider buying some of the home builders. This could be done directly, buying individual home builders such as DR Horton (NYSE: DHI), the largest home builder in the country; Toll Brothers (NYSE: TOL); or Hovnanian Enterprises (NYSE: HOV).

Another easy way to get involved and position yourself for profit may be to buy a larger basket of assets. Three of the best home builder ETFs are the SPDR S&P Homebuilder ETF (NYSE: XHB), the iShares Dow Jones US Home Construction Index Fund (NYSE: ITB), and PowerShares Dynamic Building and Construction Portfolio (NYSE: PKB). 

Just be on the lookout for signs of the current conditions changing, and act quickly. 

 

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