Absolutely Amazing Antioch:

The real estate market is always fun to follow. Presently I am tracking the action in Antioch. Investors are coming into the market with conviction. In my opinion maybe a little to much conviction but there is profit in the short run for the investors and that's whats driving this mini bubble. At these prices I also see profit in the long run but I think there is a lot of unrealistic expectations by some of the less savvy investors. The frenzy is letting the banks unload a lot of inventory. This is very good for the short run. Eventually the market will come to some sort of equilibrium between home prices and market rents. Rents will be an important driver of prices in the future because this boom is predicated on a large influx of investors renting their homes out at cash flow positive and flipping in 5 years for a profit. Many economists are saying that first time home buyers are fueling this rally. I see the main focus of this frenzy in Antioch being provided by investors.

The Antioch housing market has not made an appreciable increase in pricing since it slammed into a bottom last year. Homes are still selling at $125 a square foot for normal sales, $100 a square foot for Distressed Sales(REO and short sales) and $90 a square foot for foreclosures. The only thing that has changed is that investors are pouring into the market. One investor will buy a home at a foreclosure sale($90 sqft.) or an REO($100$ sqft.), fix up the home and sell to another investor for $125 a square foot. The original investor seems to make about $20,000 to $40,000 for their effort after all the costs. It appears that the second investor is looking to rent the home for 5 years and sell for a significant profit, at least this is what I have heard second hand. Of course some of the second sales are to first time home buyers but it really appears that this market is being driven by investors.

Here are some observations:

Home 1:
Purchased in 1997 for $41,500
Purchased in 1998 for $102,000
Purchased in 2006 for $405,000, lost to bank in 2009
Trustee's sale 2009 to investor for $77,200
Sale to second buyer 3 months later(10/16/09) for $155,000

Home 2:
Purchased in 2004 for $527,000
Purchased in 2006 for $680,000, lost to bank in 2009
Trustee's sale 2009 to investor for $177,100
Sale to second buyer 3 months later(10/16/09) for $283,000

Home 3:
Purchased in 1994 for $157,000
Purchased in 2004 for $441,000, lost to bank in 2009
Trustee's sale 2009 to investor for $149,900
Sale to second buyer 3 months later(10/20/09) for $220,000

Home 4:
Home purchased in 2005 for $650,000, lost to bank in 2009
REO purchase in 2009 for $206,000
Sale to second buyer 2 months later(10/16/09( for $260,000)

There are hundreds and hundreds of examples. Eventually the profit from the spread from the Distressed purchases of the First Investor to the Second Investor will diminish to the point where it is not worth the risk. Once that happens this will take away about 30% of the sales in Antioch. Because of the herd mentality of the Second Investors I am guessing that they will not make the 5 year gains that they are expecting. Once the investors make this realization the sales will be reduced even more. These same Second Investors instead of just reducing purchases could bolt from the market with the double dip in the economy in 2011. Either way this dynamic is extremely interesting and I will keep tracking the Antioch market for the next few years.