It was just a few years ago that cash-poor folks with really bad credit scores were buying houses they couldn’t afford. Today, most of those people are renters trying to get back on their feet. This begs the question: Who’s fueling the fire in today’s hot real estate market?
The turning point
It was March of 2013 when I began looking at home prices in the suburbs of San Francisco. I was surprised to find that in as little as a few weeks, some houses had increased in value in upwards of 15 percent. Translation: Those houses would now sell for $30,000 more in March than they did in February. I considered the possibility that wealthy millenials from the tech industry were driving up home prices. I was wrong.
The real driving force
Charina Todd is a real estate agent with Provident Realty Inc., which services the San Francisco Bay Area. She told me that wealthy foreign investors were buying up her property listings. These investors paid in cash and were buying older, modest homes for much more than they were worth. She said she could barely handle the phone calls due to the bidding wars erupting over these properties. Investors were willing to pay $10,000 to $15,000 above the asking prices of these homes.
Not everyone is in economic recovery mode
Fast-forward to today. 500 miles south of the Bay Area is my small, unincorporated community in the hills of Southern California. On my tiny block, many still feel the sting of a depressed economy. Out of a total eight homes, there are three that are not current on their mortgage payments and two have been foreclosed in the last few months. One homeowner, a former television producer, has been unemployed for three years. Another neighbor, a self-employed construction contractor, struggles to find consistent work and clients who pay on time. The third neighbor is an investor. He bought his home at the height of the market and does not see the point of paying on a house that is financially underwater.
The right direction
There is some good news: According to bankrate.com, foreclosure filings were down 10 percent nationally from January to February. According to the federal reserve’s website, mortgage delinquency rates are the lowest they’ve been since 2009. The economy is inching towards a recovery, very slowly.
More questions than answers
Will speculation continue to drive up real estate prices? If so, where does this leave the thousands of Americans who are looking to become homeowners again? Will they be priced out of their markets when they’re finally able to afford homes? And, are we truly in another real estate bubble? Unfortunately, we won’t know the answer to this question until the bubble actually bursts. At that point, if it comes, I’ll only have one question left: What do we do now?