It's being anticipated that large-scale investors in US real estate will begin to sell off many of the properties in their portfolios over the next 3 to 5 years. According to the article in Propertywire, this should help boost inventory levels, and it should help promote a smoother real estate market.
The latest Home Price Expectations Survey from Zillow shows that respondents expect home price values to grow on average of 4.5% this year, and that appreciation rates will steadily begin to slow down in the years leading up to 2018. The survey was conducted amongst 110 real estate experts and economists as well as market strategists and also asked opinions on investor activity.
During the recovery thousands of homes throughout the country have been purchased by large-scale investors, particularly foreclosure homes and lower-priced properties. These investors have gone on to renovate the properties before adding them to their portfolios as rental properties. In many ways this investor activity could be viewed as being a good thing as it helped the property market to recover from the depths of the recession, but it is also created competition for ordinary homebuyers. As a result property prices rapidly increased in certain areas where supply was scarce.
This latest survey also asked respondents to comment on what would happen to the market if these large-scale institutional investors decided to scale down their activity in 2014. Some 79% of those replying thought if this were to happen the impact will be somewhat significant or significant. When asked how soon these investors will sell properties in their portfolio, some 57% thought this would happen during the next 3 to 5 years.
The chief economist for Zillow has pointed out that a decline in investor activity would not necessarily be a bad thing, and those buyers hoping to purchase the property this year would face less competition from investors who often choose to purchase with cash. This should help offset higher mortgage rates and higher property prices, and the decline in investment activity should be viewed as a sure sign that the market is slowly returning to normal. It's not expected that there will be large-scale selloffs by institutional investors hoping to make a quick exit from the market.
While home price values are expected to increase by 4.5% this year, this is higher than the historical norm which would be around 3%. It's anticipated this figure will drop to 3.8% next year, and 23.3% by 2018.