The thing I am wary about (but again don’t know) is that if house prices were so investor driven what happens when investors start dumping and leave. Will they dump. Will they hold. Who owns what. Is the market really investor driven? It seems to me the housing market now is treated more like the stock market instead of people just buying homes. So are homes just like the stock market? Big ups and downs. Speculative driven. Then the Fed pushed all cheap money in. That is said to be unprecedented. What is that going to mean?
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Reports abound of investors buying between 30-50% of properties is some markets. Some of these investors are large and bought anything and everything. They bid up the price quite a lot, but I expect are in the same boat as everyone else, i.e. waiting to see which way the tide turns. There has probably been some shedding of dead wood, but no stampede which is difficult to do with something as illiquid as RE. I don’t think there is much investing currently, as increased prices have put downward pressure on capitalization rates, and since prices have leveled off, overall returns on investments have wavered.
Another perspective to watch is shares and bonds. I believe many RE investors would prefer to be invested in traditional financial products (me included), and are waiting for a similar scenario to play out. With so much uncertainty, bricks and mortar offers a more tangible alternative to the volatility of paper. If you believe that the Federal Reserve holds the key to an unraveling of all over-valued assets, then at some point we will see a correction. Since things have held up pretty well so far, it may take a recession to jolt an undoing of all the ‘good’ work. Historically, one is due.
So a decision whether to buy, or not, revolves around either making the compromise you speak of by lowering your expectations, or sticking to your guns and allowing a principle dictate your actions. Which will be the more financially astute may not matter as you can’t blame yourself for not knowing the future. If it’s of interest, even during the trough of the crash I found property prices in soCal to be over-valued so voted with my feet and never looked back. The value you place on things doesn’t always need to be supported by clever numbers. If something seems expensive, it means you do not place an equal value on it. So you walk away.
