News Column

Flippers, lending changes helping push market toward another bubble, experts say

June 18, 2014

By June Fletcher, Naples Daily News, Fla.

June 18--NAPLES -- While prices in Southwest Florida are nowhere near the inflated prices they reached during the top of the housing boom, some real estate experts are worried a bubble is starting to inflate.

Flippers, more lax lending standards, a pervasive inventory shortage, and a growing lack of affordability are to blame, they said.

"It's a harbinger of a bubble," said Daren Blomquist, vice president of Irvine, Calif.-based research firm RealtyTrac.

He notes that in April, overall median prices were below peak prices during the housing boom, but still have risen considerably from their recessionary lows in 2010.

Including single-family, condos and townhouses, prices in Collier County were up 60 percent from their trough, to $240,000. In Lee, they rose a whopping 90 percent, to $142,500.

Still, prices are 38 percent below their peak in Collier County, and 44 percent below peak in Lee.

"It's a warning flag," Blomquist said. "Properties are not necessarily selling for what people can pay."

Institutional investors, such as hedge funds and banks, are starting to do multi-property transactions, which can consist of single-family homes, condos or vacant lots, bought either from banks or from each other.

In Collier, 49 percent of all institutional investor transactions fall into this category; in Lee, 55 percent do, Blomquist said.

Blomquist was one of a panel of experts at the National Association of Real Estate Editors conference in Houston last week who raised the specter of a bubble.

Naples real estate appraiser Tim O'Neill also has heard of investors who have purchased in this area flipping homes to each other, to bring up the values of their portfolios.

"They're falsely inflating prices," he said. "It's a problem -- and what happened leading up to the last boom.

"The whole greed factor is starting to kick in," he said. "We're suffering from short-term memory loss."

Most of this activity is happening in entry-level neighborhoods like Golden Gate Estates and Golden Gate, he said, rather than in higher-priced neighborhoods west of Interstate 75.

Lenders also are loosening guidelines as to who they will lend to, he said.

"It resembles a lot of what was going on in 2005 and 2006," he said.

Naples real estate appraiser Tricia Eriksson said that overall, prices in the county have risen so much "we've already had a small bubble."

But not all neighborhoods have seen the same level of increases. In some communities, like Aviana, they have stabilized, but in others -- notably the Orange Blossom corridor and the Monterey neighborhoods -- prices of some properties have moved back up to 2006 levels, she said.

Eriksson said it's difficult to pinpoint which sales are being done between investors because in many cases such sales are private and done with cash.

"We don't see them on the MLS," she said.

Meanwhile, frantic run-ups in prices are happening in desirable, modestly priced communities popular with both investors and homebuyers.

Eriksson discovered this about two weeks ago when she tried to buy a home priced in the low $300,000s in the Lake Park area.

She bid $10,000 above the asking price, but lost out to a cash buyer.

"It's hard to compete," she said.

A boost in the housing stock, particularly on the lower end, would help ease the problem. But many builders are targeting move-up buyers, who have equity and can pay cash, rather than first-time buyers, said Brad Hunter, chief economist of West Palm Beach-based research group MetroStudy.

Hunter said traffic has been strong in new home communities in Southwest Florida, but that many would-be buyers now are experiencing "sticker shock" as prices continue to soar.

Particularly hard-hit are first-time buyers, who besides having no equity also are burdened with loan debt and a low-paying entry-level job.

"They're being shoved out of the market," he said.

Many are becoming renters instead, said Stan Humphries, chief economist at Zillow. But since investors have pushed up rents because of rising demand, the opportunity to save for a down payment is diminished.

Nationwide, rent affordability is at an all-time low, he said, grabbing 30 percent of the renter's income.

"Market dynamics are not normal," he said.

Of course, not everyone sees a housing bubble on the horizon.

Florida Realtor's chief economist John Tuccillo said there still are headwinds in terms of affordability, particularly since real incomes "have not gone up in any meaningful way."

However, the rampant speculation driven by subprime lending that helped inflate the last housing bubble isn't a big factor right now, he said.

Moreover, those investing in Florida are generally buying to hold and rent rather than flip for a quick profit, he said.

FreddieMac chief economist Frank Nothaft said while he doesn't think a housing bubble is imminent on a national level, in some markets, home price increases are "unsustainable."

"Increases we have seen so far are eye-popping," he said.

Southwest Florida falls into the unaffordable category when you compare median single-family home prices with income levels, he said.

Naples-Marco Island has a value of 57 on FreddieMac's affordability index, which considers a value of 100 and above affordable. Cape Coral-Fort Myers is more accessible to buyers, with an index value of 93. Mobile and tablet users can click here to see an interactive graphic comparing the homebuyer affordability of Naples to other U.S. cities.

And with interest rates up by about a percentage point since this time last year, and projected to rise more in the future, it's ever harder for buyers who need a loan to compete with those, like investors, who can afford to pay cash.

While investors have been beefing up their portfolios over the past few years, so far they haven't been dumping them in bulk, Nothaft said. That's helped add helium to home prices nationwide.

But at some point, home prices reach a point where investors decide to take profits, or escape what they see as an overheated market, Nothaft explained.

So if home prices keep going up at double-digit rates over the coming year, inducing investors to sell, "I'll be more concerned," he said.

___

(c)2014 the Naples Daily News (Naples, Fla.)

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Source: Naples Daily News (FL)


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