With recent news of rising duplex prices, many prospective sellers are holding off, thinking that with just a little more time, the market will catch up with 2006 prices.
Sounds perfectly reasonable. And yet, according to a recent report from Radar Logic, rising prices may ultimately attract more sellers, which will result in a slower or reduced rate of price growth.
As of April, the 25 metropolitan area the analytics firm tracks saw an average composite price of $205.46 per square foot, which is up 13.1 percent year-over-year, and represents a 23.7 percent gain from January 2012.
These gains are a result of several factors. First, “motivated sales”, which Radar Logic defines as REO or bank-owned properties, have gone from a 26 percent share of the market, to just 11 percent. In a normal market, foreclosures are just 5 percent of the market.
There are some who think rising prices may incite Fannie Mae, Freddie Mac and other lenders to release some of their shadow inventory into the market, and/or start moving many delinquent borrowers through the foreclosure pipeline at a more rapid pace.
It is estimated that Fannie and Freddie alone have an estimated 1.7 million delinquent properties on their books nationally.
Rising prices and interest rates will also deter real estate investors looking for high rates of return. As they have been responsible for as much as one-third of the market in recent years, their withdrawal from it could cause prices to decline. What’s more, many of these investors bought properties with the intention of selling when the market improved. Rising prices may move them to do just that.
Finally, traditional sellers who have been sitting on the fence may decide to sell. This too will increase the amount of inventory for buyers to choose from, creating more competition among sellers.
For now, it remains a great time to sell; before the competition heats up.