L.A Bargain Hunters Changing The Real Estate Landscape
This is good news.
The larger the group, the better.
There are a large group of people out there who are waiting patiently for some type of correction in the markets - both the real estate and equity markets. This is good news. The larger the group, the better.
Imagine driving down a country road where vultures, crows, and hawks didn’t exist: the road would be scattered with the carcasses of unfortunate animals struck by vehicles. The work scavengers do is an important part of nature …..and commerce. The more hungry scavengers around, the quicker a mess is cleaned up. Over the past 10 years or so, capital has been extremely cheap. Several wealthy people and institutions have been able to amass enormous amounts of cash specifically geared towards buying up distressed assets. The more money dedicated to this, the better. Already I have witnessed some ‘vulture funds’ stepping in and buying up excess inventory at discounts. The more of these funds competing for these assets, the higher the selling prices will be, and the less impactful this moment will be on the housing markets.
Extreme growth can lead to extreme bubbles. Over the past decade, we have experienced slower, steadier growth. We have experienced an economic rebound with very different, much stricter lending standards. We only have small pockets of over-supply and most developers have larger equity positions than ever before. Our building rate has not kept up with demand, especially on lower priced properties. Some developers have already obtained ‘inventory loans’ on fully built and finished properties. At some point, if these don’t sell, chances are they will sell them off at a discount to entice the vulture buyers. The more of them that bid, the higher the pricing.
Real Estate Vultures are a natural part of the real estate equation. The more that exist, the better it is for markets in that it keeps prices stable. However, it is my opinion that individual buyers hoping for big bargains may be disappointed when they discover just how many people are competing for the same ‘bargain’.
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