More Pent Up Real Estate Supply? Thank the Accidental Landlords.
A few days ago I read the article in the New York Times that mentioned BiggerPockets. It was an interesting piece that discussed resources for people who had become accidental landlords. They had never intended to own rental properties but the realities of the current real estate market had caused them to do just that.
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That article had appeared on December 24th. That very evening, Christmas Eve, I was at a holiday gathering of friends and family. Out of the half-dozen couples in attendance, four of them owned rental properties. I was the only one who would be considered a professional. The others had all become landlords out of necessity.
One couple had taken advantage of the real estate collapse to upgrade to a newly built house that was significantly better than their previous home. Another moved out of state for a job opportunity, while a third came across a deal too good to pass up. The common thread was that they would all prefer to sell but deemed it better to wait for the market to improve. None of them had a desperate need to liquidate the property.
Pent Up Supply
Real estate investors have been hearing about the pent up supply of foreclosures for some time now. The assumption is that real estate will recover as foreclosures dissipate and banks liquidate their holdings. While that will still take some time, the theory is that prices should increase when the excess supply is eventually absorbed. Like those ads on TV – but wait, there’s more!
A real estate market that is more favorable to retail sellers and prices that increase is just what these “accidental landlords” are waiting for. How many people are in that position? My guess would be a lot more than you might imagine. They are not desperate sellers but they would unload their properties in an instant if they felt they could obtain reasonable value.
How long might this pent up supply hold prices down? How many people have taken their homes off the market waiting for prices to improve? They all will jump back in at some point. When market demand pushes prices up to a point where they are comfortable they will list their homes again. That is one reason why you cannot realistically expect prices to shoot up any time soon.
The positive point here is that the market will climb slowly and that is much healthier in the long run. Some of these landlords may become desperate at some point or just get tired and that will create opportunities for investors. Without the bubble-mania people may invest for the right reason instead of investing because they are afraid of missing out. The ride back up may be slow, but it should not be followed by a terrifying collapse this time.
I always tried to turn every disaster into an opportunity. – John D. Rockefeller