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Investors May Create Price Floor

Investors in the single-family housing market could create a price floor, locking in higher prices for underwater homeowners who eventually hope to return to positive equity, suggested Elizabeth Duke with the Board of Governors for the Federal Reserve System.

In a recent speech, Duke went over what is already well known in the market: "investors have been attracted to the housing market because of low prices on REO properties," she explained.

Low purchase prices and the potential for capital gains pulled in both large institutional investors and smaller individual real estate-minded investors.

"This increase in investor demand has supported house prices so far and may continue to provide a floor for them," Duke said.

As for how long the investor roll will last and whether they can lift prices as more REOs hit the market? Duke says, "I think house prices will continue to rise, as the supply of existing homes on the market will remain quite tight. I do not believe that a flood of houses on the market from households that are currently underwater or from bank REO is likely to materialize or to be sufficient to outpace growing demand."

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Read Elizabeth Duke's speech





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