The following is a summary of our recent interview with Rick Sharga, which can be accessed on our site here or on iTunes here.
FS Insider recently discussed the return of home flipping, housing affordability, whether commercial real estate is in a bubble, and the overall outlook for the US housing market this year with Rick Sharga from Ten-X, the largest online real estate marketplace in the world.
Recovery in Late Stages
The US housing market is in the late stages of a recovery that started back in 2011 to 2012, Sharga stated.
“We’re still not back in full recovery, which we would consider to be something like 6 million existing homes sold a year, and between 750,000 and 800,000 new home sales,” he added.
We’ll probably end this year marginally better than last, with close to 5.5 million existing homes and 650,000 new homes sold. These figures would likely be higher except that both existing and new home markets are suffering from a lack of available inventory, as Bloomberg also reported on today.
Lack of inventory is driving up home prices, Sharga stated. Normally we see a 4% increase in prices year-over-year, but this year we might see unusually high price increases, possibly as high as 6 or 7%, as a result.
Flippers Returning
Sharga has seen an increase in flipping interest, but this trend is regional, he stated. In markets such as coastal California, the Pacific Northwest, parts of Texas and Florida, he’s observed more flipping activity.
This has to do with prices being too high in those markets for an investor to buy a property and rent it out at a profit. Inventory levels in those markets are also very low.
Other markets don’t have this dynamic, such as in the Midwest or the Southeast outside of Florida, where many investors are buying and holding properties because strong rental markets exist.
Vacancy rates and ownership rates are near historic lows, Sharga added, further supporting the rental market.
There’s growing demand as households are forming. Ownership rates are at the lowest level they’ve been in 30 or 40 years, so people are looking to rent.
“The other trend that we’re seeing is in other parts of the country … a lot of people are meeting the need for rental properties by buying, rehabilitating, and then renting out single-family homes,” he said.
Commercial Real Estate in a Bubble?
For Sharga, there are five areas of commercial real estate to keep in mind: the office, multi-family/apartment, hotel, industrial, and retail markets.
“They’re all performing at different rates,” he said. “Because of the low cost of capital … prices and sales volume have actually been outpacing the underlying fundamentals.”
But Sharga didn't think this amounted to a bubble—at least nothing close to what we saw with US housing ten years ago.
That said, there is some weakness in a couple of the sectors, including the retail sector, Sharga noted.
“We’re seeing a lot of growth in the ‘e-tail’ sector, which is eating away at the need for brick-and-mortar facilities,” he said.
Interestingly, the rise of online retailers has actually led to a little bit of strength in the industrial sector because we’re seeing warehouses and distribution sectors built to handle the traffic, Sharga noted.
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