The word is out. We are not facing another housing bubble, and a housing recovery is in progress. At least that’s the theme the industry messengers are sticking to.
One of the more reliable and consistent of those messengers is Rick Sharga, executive vice president at Auction.com, who has become known as one of the nation’s most respected voices of the real estate industry.
Speaking recently before the OCRE Forum, a group of Orange County, Calif.-based real estate investors and professionals in Irvine, Calif., Sharga said straight out that the nation is not looking at another housing bubble. In fact, one piece of evidence that a housing recovery is underway is home prices, which have returned to the level they would have been at if the market had been more of a normal one over the past few years, he explained.
“It is a real recovery. But it’s an investor accelerated recovery,” said Sharga, a former executive vice president at Carrington Mortgage Holdings, one of the nation’s large hedge funds that has been on a bulk buying spree of single family homes in various markets around the nation over the past couple of years. “There will be less competition next year from institutional investors. Cash buying right now is a competitive advantage. No waiting, no appraiser to get in the middle.”
Carrington’s 2-year window to buy properties is closing, and Sharga believes the large institutional investors like Carrington will start being replaced by individual investors going forward. As to the talk that the institutional investors may be reconsidering their strategies and start selling off properties sooner than later due to recent increases in home values, Sharga dismissed the notion.
For about half of the institutional investors, Sharga said the strategy is still to hold properties for the long term, while some are looking at forming real estate investment trusts (REITs) as an option. Others are looking for prices to appreciate further before selling off.
“We’re not going to have a fire sale either,” he noted. “It’s a 3 to 5 year hold for most.”
As for the level of foreclosures in the market, Sharga noted the general downward trend in delinquencies and foreclosures currently being reported. According to his information sources, 50 percent of new foreclosure starts are in reality repeat foreclosures.
“The pipeline of distressed inventory has been cut off at the source,” said Sharga, former senior vice president at RealtyTrac, “Shadow inventory is declining, but is still significant.”
Other evidence of a true housing recovery Sharga pointed to were increasing housing starts (although not starter homes), and relatively high affordability levels while interest rates are on the rise.
Sharga believes 2013 will end up very much like 2012 with around 1.5 million foreclosure actions — 1 million short sales and 500,000 bank-owned properties (REOs), and 5.1 million home sales for the year. As for home prices, Sharga expects them to be up 7.5 percent for the year on a national basis.
“This is a relatively weak economic recovery. A good housing recovery, but not necessarily a stable one,” Sharga said.