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.
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