In the latest evidence that the U.S. housing market is bouncing back from its six year slump, the April 27, 2012, Wall Street Journal reports that “stunned” homebuyers are finding that bidding wars are back as buyers are increasingly competing for the same home. While competitive bidding isn’t producing the huge price increases they during the housing boom, it does reflect supply shortages in many markets. The Journal’s quarterly survey found that the inventory of homes listed for sale declined sharply in all 28 markets tracked. Real-estate agents consider a market balanced when there is a 6 month supply of homes for sale. At the height of the crisis, in 2008, there was an 11.1 month supply. In March, 2012, there was a 6.3 months’ supply.
Here in Atlanta, agents are talking about the same phenomena. There is more competition for the better existing homes and a limited supply of new construction choices. In addition, at the lower end of the spectrum, rental homes are now being chased by hedge funds in the Atlanta market. The Wall Street money was in Phoenix, AZ the last two years and sources are telling me it is done. The latest Case Shiller Index had Phoenix at a 3.5% gain in prices year over year. We know of one local firm that has a $500 million allocation to buy rental property, and there are many more in the hunt. Limited supply and increased demand are the elements of the recovery. I continue to believe there will be a 24 month window during the recovery where prices increase at a strong pace. It may still be 18 to 36 months in the future, but I believe it is going to happen.