Are Rising Home Prices Good for Your Clients?

Home prices are rising at levels not seen since the real estate boom, but American homeownership remains on the decline.

The reason? Gains in pricing have been heavily driven by investors, leaving many potential buyers behind. imagesPrices are rising because of strong demand, lack of supply, and a sharp recovery in the hardest-hit markets. Additionally, the number of foreclosed homes coming to market has dropped significantly. So what’s the downside for your clients? With lending standards remaining tight, the everyday home shopper cannot compete with investors who are able to pay in cash.

“What we are seeing right now is definitely not normal,” said Jed Kolko, chief economist for real estate website “Not only has the number of homes for sale been constrained by the drop in foreclosed properties, but the low level of building over the last few years has diminished supply. Moreover, many borrowers remain underwater, owing more on their homes than the market value, and are unable to get the prices they need to sell their homes.”

Investors, both large and small, have swarmed once beaten-down housing markets over the last year. Many have sought to buy homes for cheap, fix them up, and rent them out. But prices have risen so quickly that this strategy has become increasingly difficult.

“It’s become harder, because the pricing has moved up,” says John Gray, the global head of real estate for Blackstone Group, a private equity firm. “L.A. is probably the toughest market.” Due to the high number of distressed and foreclosed homes on the market, the swings down may have been over-exaggerated, just as the increases may not be as strong as the underlying numbers.

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