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Why Investors Were the Real Heroes of 2011

by Steve Cook on October 3, 2012 · 2 comments

  
houses

A single survey, even if conducted to meet the highest professional standards of opinion research, can only include a limited number of questions, and thus, can address a finite number of issues.

That was the case with the Joint BiggerPockets.com/Memphis Invest survey released last week.  I had the pleasure to participate in its design and execution, and we focused to three vital issue investors face:  their purchasing plans for the near future as prices rise and inventories of distress sales shrink in markets across the nation; how much they plan to spend on repairing and rehabbing the nation’s damaged housing stock, a role for which investors get far too little credit; and limits on investors’ access to credit and how they might be lessened to facilitate more investor purchases.

The results were exciting, unique and newsworthy, confirming our goal to make a solid contribution to the cause increasing understanding of investors.  News coverage in Bloomberg, BusinessWeek, HousingWire, and at least two dozen other news outlets helped to make the exercise worthwhile.

Connecting the dots with data on these three issues was vital to the way investors are perceived.  However, there was another vital role investors play in the marketplace that we didn’t address in the survey, in part because we didn’t have the room and in part because a survey is probably not the best way to tell the story.

At least one economist I know, Dr. Alex Villacorta, chief economist with ClearCapital, has studied the dramatic difference investors made at critical junctures of the housing economy when no one else was willing or able to stop the bleeding.  Alex was one of the first to explain to me how residential investors played a central role in establishing a price floor when foreclosure-battered markets were in free-fall last year, initially in Florida and then in Phoenix and elsewhere.

In a commentary published in Forbes last January, he shared the findings of his research.  He concluded that a heavy dose of investing activity was one of the factors that built a “floor,” or foundation for which the fundamentals of price appreciation can be built.  Last year about 59 percent of Miami’s transactions were conducted with cash, followed by Orlando’s 48 percent, a sign of investor participation and a significant increase from the national rate holding right around 30 percent over the last year as reported by the National Association of Realtors.

“So, could the presence of low tier price increases, distressed home sale price increases, smaller percentages of distressed sale levels, and high levels of investor activity be what a floor looks like? Is it a blueprint for what a broader market recovery looks like as well? It seems very likely.”

It’s clear that investors entered the freefalling markets when no one else was willing to take the risk, especially owner-occupants who were waiting for the “bottom” and probably missed it. Because of their role in the toughest, scariest markets, investors helped to create the blueprint that the recovery is still following today.

Just a year later, Florida and California markets have led the way in price appreciation.  Data released yesterday by CoreLogic show that states that suffered the greatest number of foreclosures, until recently largely hotbeds for discounted foreclosures and short sales, are leading the nation in price gains.

Villacorta, meanwhile, predicts Las Vegas will be the next Phoenix with yearly home price growth of 8.0 percent and 9.5 percent forecasted over the next six months.  Perhaps no other two markets saw more investor activity in recent years.

That the recovery would look very different today without investors and the role they have played to create a price floor when everyone else had fled is clear, and doesn’t need a survey to prove the case.  Something else that the survey did address, however, is now a vital part of the story.

With prices rising and distress sales shrinking will invest remain active?

The answer was a resounding yes, as 65 percent of active real estate investors said they plan to buy as many or more residential properties in the next 12 months as they did in the past year.

Photo: karol m

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{ 2 comments… read them below or add one }

Sharon Vornholt October 3, 2012 at 7:42 am

Steve-

Those are some pretting impressive figures. I hope “regular folks” will begin to realize one day what an important part investors are playing in this real estate recovery.

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Dale Osborn October 3, 2012 at 9:59 am

When you interview a person that is being hailed as a hero – they usually answer they just did what any one else could have done and do not feel it was a heroic deed. If you interview the investors, you would probably hear the same mantra – it is just business as usual. However, their business as usual has placed them in a heroic position for salvaging the housing market crisis in 2011. Very well put article to honor the unknown heroes of the housing crisis.

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