Investors are buying homes at a more rapid pace than ever before, and this time their investments actually make sense. Most are buying homes below replacement cost, or at prices that allow for a reasonable rental return.
Across the 167 metro areas we analyzed, investor activity rose to 29.6% of all transactions in the first quarter of this year, up from the trough of 23.6% in Q4 2009. Our research leads us to believe Q2 activity exceeds Q1, and since last quarter, investor activity has already spiked 2%!
Investor activity has returned to the markets where investors got burned the most. These markets include Miami, Phoenix, Las Vegas, Sacramento, and Riverside (CA). Some markets are now completely dominated by investors, such as Las Vegas (50% of all activity) and Phoenix (46%).
Small markets are also attractive to investors, especially in inland California (Merced, Modesto, Bakersfield, Vallejo, etc.) and second home buyers are also sensing the bargains, causing huge increases in Naples, The Villages, Tucson and Panama City.
The naysayers will surely point to these facts as a false recovery. While they are technically correct, we are not concerned at all, and are embracing the return of private capital. Most of these investors are paying all cash and buying homes below replacement cost. They are helping the market recover by removing supply at the low end of the market and driving real buyers to higher price points, including new homes. We don’t see a scenario where they dump their homes en masse on the market unless it becomes crystal clear that home prices are headed down again.
We are focused on the potential positive result, which is that rising prices get fence-sitting consumers off the fence. We are seeing this occur in some pockets around the country.
We will continue to monitor investor activity closely. We doubt that most investors will have the discipline to stop investing when the market gets overheated. At that point, we will start calling them speculators. There is a big difference.
Contact us if you would like to become a client and stay on top of the issues.
This is an interesting statistic. I have to admit that I’ve never thought all that much about it, being a new home builder, but in a way it makes sense for investors to hedge their bet on the premise that the housing market is going to make a nice recovery, especially in those areas that has the most foreclosures.
Interested in your perspective on the current market conditions in my hometown, San Francisco (and Stanford), to which I returned last month. I am an investment banker with access to the Stanford Alumni Association, its many venture capitalists, and my own extensive investor database. Need to complete a volume of home (and commercial) purchases before the need of calendar 2012.
Best regards,
Jerry Butzer, Managing Partner, NBPE
HOGWASH. You call it a RECOVERY? A segment starts to show some activity and that heralds recovery of the market? Lets talk about values. Rents have never been higher, so investors extrapolate return on investment by the amount of rental income vs total PITI. In many cases we have cash sales of these REO/SHORTS, etc. Lots of this is coming from outside the country! Its a false sense of well being. Why are rents so high? From the landlords peeling the skin off millions of Americans who have lost, and will lose, their homes. They have to go rent. They are fish being shot in a barrel. Can that go on forever? Nope. Are investors counting on long term appreciation? Some are, which is stupid to factor now. So you take an area where owners had pride of ownership, buy it all up and slap renters into it. Sorry but there goes the neighborhood. The ‘cure’ is current and its has a dark backside disease.
We have MILLIONS of homes owned by banks or being short sold. There are MILLIONS more to come. Get your heads out of the sand and stop ‘spinning’ like government officials. Speaking of that, take B.O. out of the Whitehouse before its too late for this country.