We’re In a Bubble, Somewhere

We’re In a Bubble, Somewhere
By: Nicholas A. Dunlap, CPM

As figures surface showing that home prices continue to reach new lows, the market for multi-family continues to stay hot. With limited quality product and pent up investor demand, select sub-markets across the Southwest are so hot, it is as though there are price bubbles being inflated before our very eyes. As usual, markets with strong fundamentals and improving circumstances are the investor’s primary focus. Population growth, rent growth, job growth and wage growth are all factors typically considered by investors. Yet in times of uncertainty when these markets are few and far between, investor demand can cause markets to overheat and ultimately burst the bubble.

Having recently come close to two acquisitions in the Austin, Texas market which would’ve marked our first play out of California since the 1980’s, we see the writing on the wall. Our first opportunity had us against 18 other buyers, the second opportunity had us against 11. Needless to say, the novelty list prices that generated such activity are far lower than the ultimate sales prices on either of these assets. Will these values remain hot or will they be cooled off by land development?