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Investors and inventory slow price appreciation

Auction.com's Rick Sharga negates housing bubble talk

August 6, 2013

It seems like every report I cover here lately is saying the same thing: the pace of home price appreciation will begin to slow going into 2014. So when I chatted with Auction.com Executive Vice President Rick Sharga this afternoon, his predictions lined up with my recent coverage.

"I believe home price appreciation has been accelerated by the lack of available inventory and by investor activity. And I think prices rose more quickly than they would have because of investor activity," Sharga told me.

While interest rates might not do much to deter investors, who typically buy with cash, Sharga does believe that rising home prices are having an effect on investor activity.

An increasing number of investors have opted to hold off for the time being, with some even exiting the market right now, because they no longer feel they would get a good value in the areas where they’re interested in buying properties, he noted.

And then Sharga mentioned something I’d failed to even consider yet. We’re getting to the point where some investors have already bought the number of properties they originally intended, and now they’re resting on their laurels, profiting from the purchases.

The rise in home prices coupled with an already full lineup of investor-owned properties will gradually reduce at least the institutional investor activity, which really has been one of the big drivers in the low-end of the market, Sharga said.

“As home prices go up, borrowers who were either in negative equity or a neutral position are suddenly finding themselves in the positive equity position and are able to put their houses on the market," the Auction.com EVP added.

Sharga noted that as more and more existing inventory — including an increase in distressed inventory, as lenders and servicers begin to feel more comfortable in the distressed market again — enters the market, we could have a completely different supply and demand situation within a year.

But for now, Sharga expects the rate of appreciation to undoubtedly slow down in 2014.

Before hopping off the phone, Sharga was quick to assure me that, even as rates continue to slowly rise, we are no longer in danger of a bubble.

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