Rick Sharga, executive vice president with Carrington Mortgage Holdings, made the claim “we are not creating a bubble” during his keynote speech at the REOMAC 2013 Summit & Expo in Dallas on Monday. (REOMAC stands for Real Estate Owned Managers Association of California).
Currently in the Orlando area, we are seeing a lack of inventory and a surplus of buyers. Prices have been increasing steadily and bidding wars are all to common. We are seeing a bubble in housing. Is it as big as the Boom Bubble? No. Will the effects of this bubble burst be as hard felt as the Boom Bubble? I doubt it.
I believe bank owned property holders and their affiliates as well as the federal government are contributing to this bubble. Sellers with equity are as well, and to an extent I can’t blame any of the parties for doing it.
Sellers with equity are holding out to see where the market is heading. Many “don’t have to sell” and can sit back and wait a little while to see where this market is going – with all assumptions that it will continue going up. On a side note, I do caution these sellers that don’t have to sell but would really like to not to hold out too much longer. One way or another, this mini boom will come to an end and the market will adjust accordingly.
Bank owned property holders and their affiliates are contributing to and helping to create this bubble by keeping a stranglehold on inventory; releasing properties to the market at a trickle and pushing up prices. I can attest to this as many others in our area can as well.
In just about any neighborhood in the Orlando area, you will find at least one home in a neighborhood that has been sitting vacant for a long time. The house next door to mine has been owned by Bank of America since April 2010. Bank of America has not made a single attempt to sell it in all that time.
This is fact around here, and it is kind of a shame when ready, willing and able buyers are out there putting strong bid after bid on homes only to be beat out by cash investors or stronger offers. It is not accurate for Rick Sharga, executive vice president with Carrington Mortgage Holdings, to say that “we are not creating a bubble” when bank owned inventory (also known as REOs or foreclosure) is being trickled onto the market.
When one state out of 50 holds 16% of the distressed properties and there are 2.2 million units of shadow inventory lingering in our country, more needs to be done to resolve this matter. Florida seems to be being used as a testing ground for what can and can’t be done by REO managers. The small amount of bank owned inventory being released to the market is typically coming on 10-15% above current market value, and cash investors are pretty much paying it —- for now.
I can understand why the powers that be are doing it. They do not want to flood the market like they did at the beginning of this mess and drive prices into the ground. They want to help push prices up, and work their losses down. But there is a happy medium somewhere. It seems to me that big banks and corporations don’t understand the word moderation or believe in middle ground.
Banks are pushing this bubble – no matter how many times or how many ways they say they are not.
The Government is also contributing to this bubble by keeping interest rates low. Chairman Ben Bernanke says he is going to keep rates low through 2014.
Do I understand why banks and the Fed are doing this? Yes. It makes sense. Flooding the market and letting interest rates rise will not help us get through this. Do I think the methods are a little extreme (and maybe even a bit greedy)? Yes. Give us a little more inventory to work with and work through. Give more buyers, especially families dependent on financing, a chance. I am for increasing values. I would love for my home, and everyone else’s home, to be worth what it was in 2007. Let’s get there a little more naturally though, and with a little more heart. We have seen what artificially inflated prices has brought in the past. Let’s not do that again any time soon.