Friday, March 01, 2013

Investors driving home market again in some cities

During the housing bubble, investors played a significant part in overheating home values.
And when all the air went out of the home market, the mortgage companies and ultimately the economy were left holding the bag when the investors bailed out.
Now that housing is picking up steam again, investors are back buying up thousands of homes in North Texas and across the country.
This time, the mortgage companies aren’t taking a risk with these sometimes speculative home purchases.
But that doesn’t mean the surge in home investment won’t have a big impact on the housing market.
Indeed, in many areas of the country, a flood of dollars is driving up home prices and dramatically reducing the number of houses for sale in some cities.
And while most of the purchases are for cash and don’t put mortgage companies at risk, what happens five years from now if many of these investors cash out of their deals?
The numbers are just huge.
Deep pockets
For January alone, the National Association of Realtors estimates that investors purchased about 1 in 5 of the houses sold across the U.S. And in many markets, the share is much higher.
That adds up to more than 55,000 homes snapped up by these buyers. It’s more houses in one month than were sold in the Dallas-Fort Worth area last year.
And in some markets, including Las Vegas and Phoenix, investors have outnumbered owner-occupants in recent months.
Most of the homes the investors are buying are previously foreclosed or distressed properties.
The purchases of these properties by buyers who plan to rent out the homes and wait for property values to rise is a major contributor to the decline in home inventories.
“We are seeing deep-pocket funds buying this stuff on the courthouse steps,” said George Roddy Jr. of Addison-based Foreclosure Listing Service.
Big investment funds with hundreds of millions of dollars in their pockets have shoved aside many mom-and-pop buyers who used to acquire previously foreclosed houses.
In some parts of the country, the investor scramble for homes is causing dramatic inflation in home values.
That’s the case Phoenix, Las Vegas and even Detroit, which have all seen huge spikes in home values in recent months.
Phoenix home prices were up 23 percent in December from a year earlier — more than three times the average nationwide increase.
“They’ve bid away a large amount of profit because of the competition for these properties,” said Mark Fleming, top economist at CoreLogic Inc. “The game is over in Phoenix — they are leaving.
“They are leaving for other places like Indianapolis, which is apparently a hot market now,” Fleming said to a mortgage banking group meeting last week in North Texas. “They are moving around seeking better returns.”
Going for return
With estimated average returns of close to 10 percent, investors have found rental housing a lot more attractive than traditional investments.
These buyers have taken thousands of problem properties out of lenders’ hands and filled them with renters.
And mortgage companies have saved millions by unloading these assets quickly rather than holding the real estate for months or years.
All of that is good stuff.

Steve Brown
Published: 28 February 2013 09:21 PM