The old saying that the market adjusts itself because of supply and demand, has been unduly influenced by the intrusion of investment bankers and hedge fund managers making ALL CASH purchases of blocks of homes with mortgages in arrears, which have not yet been foreclosed upon. Because the investment bankers buy in bulk on an ALL CASH basis, with the intention of establishing REITS which will own and manage these properties as rental properties, and then sell them later in a more inflationary market, this real estate has essentially been removed from the marketplace for individual purchasers seeking to buy a home. Read more about Wall Street home purchases here. The result is that the end consumer who wishes to purchase a home for his or her personal use has been squeezed out of the market, inventory has been greatly artificially reduced and the available supply of homes for sale has jumped substantially in price.
Because of the lack of inventory, the choicest buyers, who are in a position to make ALL CASH offers, have a decided advantage over those who wish to make prudent purchases and have to finance a portion of their home purchase price. The situation has caused a substantial artificial increase in demand, because of diminished inventory which has raised prices across the board.
Is removing inventory from the consumer accessible marketplace a healthy way for the housing market to recover? I would suggest not. Forcing the general public to scramble for the existing properties on the market which are being sold by sellers who are current on their mortgages, is severely limiting the available supply and artificially inserting an inflationary factor into the housing market. One must have a very short memory not to recall the last inflationary increase in housing prices in the early 2000s and how these artificially inflated homes prices devastated the economy.
Read more in this NY Times article As Home Sales Heat Up Again, Buyers Must Resort to Cold Cash.
