May 23, 2012
Cash buyers and investors have helped keep the housing market afloat in recent years, swooping in to seize on low prices and interest rates to buy distressed properties. Investors bought 1.23 million homes in 2011, up 64.5 percent over 2010 and accounting for 27 percent of all existing home purchases in the U.S. last year, according to the National Association of Realtors.
But that trend may be changing. New data confirming the recent surge in home sales indicates that traditional homebuyers have begun to reenter the market in a big way, according to Lawrence Yun, chief economist for the National Association of Realtors. Cash home transactions, which are common among investors, accounted for 29 percent of transactions in April, down from 32 percent in March, according to the NAR. Meanwhile, single-family home sales overall rose 3 percent.
“It is no longer just the investors who are taking advantage of high affordability conditions,” Yun said in a news conference Tuesday. “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices.”
Realtors who sell distressed and non-distressed properties nationwide say that while investors show few signs of abandoning the quest for cheap homes, they are seeing growing numbers of homebuyers intending to occupy the properties putting down bids. “What’s happened across the spectrum of buyers over the last two or three months is that we’re getting multiple offers on properties,” said Gregg Holland, a realtor for Coldwell Banker in Westlake Village, Calif. “You’re not seeing many investors getting into bidding wars over distressed properties… It’s regular homebuyers getting into the game.”
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Hala Imms, a realtor based near Philadelphia who manages mostly distressed properties, says she has also seen the market for owner-occupied homes pick up over the last three months. “The buyers have gotten off the fence after waiting to see what would happen to prices. I’m now being confronted with multiple offers, which is definitely a change from the last few years,” she said.
New home sales increased 3.3 percent in April to a seasonally adjusted 343,000, after suffering a 7.1 percent drop in March, new Commerce Department data released Wednesday show.
Meanwhile, sales of existing homes rose for the first time in April in three months, up to an annually-adjusted rate of 4.62 million up from 4.47 million in March, a ten percent increase in sales from April of 2011, according to the NAR report released Tuesday. Median existing home prices also ticked upward to $177,400 from $164,800, marking for the first time since summer of 2010 that prices grew for two consecutive months, and the biggest year-to-year gain since January 2006.
Although economists agree that the housing market’s worst days are behind it, they say cash investors will continue to play a crucial role in nursing it back to health. There are still millions of distressed properties waiting to enter the foreclosure process, and it’s the cash investors who will have the means to help empty that backlog once they hit the market later this year, said Mark Zandi, chief economist for Moody’s Analytics. “The investor and cash share is going to remain very high for the market in the next several years, and that’s a good thing because it’s going to help clear the market of these problem loans quicker,” he said.
Cash buyers also carry an advantage that many middle-class homebuyers lack: They have enough money in the bank to qualify for a mortgage. According to NAR data, an individual who purchased an investment property in 2011 had a median income of $86,100, compared to the $49,445 average median household income an American family earned in 2010, the Census Bureau reported. Tight lending conditions still preclude many families who might have qualified for mortgages prior to the recession from buying, but that is less of an issue for investors and cash buyers said Diane Swonk, chief economist at Mesirow Financial. “Realtors are starting to see more people get out there and list again, but that increased supply coming on could overwhelm demand given the hurdles in obtaining mortgages,” she said.
Economists say the latest figures offer some of the first true signs of encouragement for the nation’s beleaguered housing market since it tumbled downward in 2006 after loose lending requirements created a housing bubble that triggered the worst financial meltdown, and subsequently acted as a drag on the rest of the U.S. economy.