Current Market Conditions

Based on recent information, the average U.S. residential home prices have increased approximately 8.1 percent over the past 12 months.

Driven by a combination of persistently low mortgage rates, moderately improved unemployment rates, and a reported scarcity of supply, the increased demand for the average residential home is pushing prices upward. Additionally, family formation rates are slowly recovering from the downturn experienced during the recent recession.

Leading the price recovery over the past 12 months are areas such as Salt Lake, Phoenix, San Francisco and Las Vegas. Reports are that these areas have seen price increases of around 20% in the past 12 months. Some of these locations are also areas that suffered some of the greatest price declines several years ago.

A large portion of the overall demand for existing residential housing units is being driven by institutional buyers. Some estimates indicate as much as 20 to 30 percent of residential home purchases over the past couple years have come from various types of institutional buyers.

Generally, these buyers are investing on behalf of others who have contributed to collective pools of investable cash. These buyers are purchasing groups of residential homes across a range of locations with the intent of renting these properties for several years. Assuming the rent proceeds can meet or exceed the ongoing costs of maintaining the home, paying taxes and other costs, the institutional investor is betting the price of the home will appreciate during the next several years and a meaningful profit can be realized at the time of the future sale.

Demand for residential real estate from these pools of investable funds is likely resulting in a portion of the reported increase in the U.S. housing market prices. At some point, these funds will desire to harvest the anticipated gains in their residential holdings and move on to other more attractive investments and provide a return to their investors. A mass exodus of these institutional investors could pose a risk to U.S. residential home prices in the future.

Overall, yes home prices are recovering and it seems that residential homes are in-demand, however, the problem remains that a large portion of buyers are not in fact families, but investors.

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