The Investor Swoon: Real Estate Non-event of 2012


I suppose it’s not too early for year-end awards, so I would like to kick off the season with a nomination for Real Estate Non-event of 2012.

I call it The Great Investor Swoon that Never Happened.

About a year ago when foreclosure inventories started shriveling up and prices started rising, first in Florida foreclosure markets, then in Phoenix and finally in California, the drumbeat began. Tighter foreclosure inventories and shrinking discounts meant tougher times for investors in the opinion of a number of observers, including those who view REO sales as detrimental to the cause of homeownership, and are “out-muscling” first-time buyers, as a  USA Today headline put it.

Neither the non-existent swoon nor the alleged out-muscling of first-timers tells the real story of what happened this year.

The most important development in the investor word was the entry of more than two-dozen extremely well finance investment ventures determine to establish soup-to-nuts single family rental factories to buy, repair, manage, securitize, and sell bonds backed by former foreclosures to institutional investors in a secondary market yet to be established.  If individual investors have been guilty of outmuscling first-time buyers, they are 90 pound weaklings compared to the financial clout wielded by some of these players, like LA’s Colony Capital, one of the firms selected by FHFA to buy and manage single family rentals for Fannie Mae and Freddie Mac.

One of the reasons that BiggerPockets and Memphis Invest conducted the national survey of investors in August, Real Estate Realities, was to put to rest the speculating about investor intentions in the changing environment investors face. We focused the survey on short term purchasing decisions and I was pleasantly surprised when some 39 percent of active investors said they intended to increase their purchases over the next twelve months and 26 percent planned to buy as many properties in the year to come as they did in the past year. Only 30 percent said they planned to buy fewer properties.

“These aggressive plans signal investor confidence that rents will continue to be strong, and that prices will continue to rise and that properties purchased today will appreciate. They also suggest that investors will play as great or a greater role in the recovery of local real estate markets in the months to come than they have in the past,” we said when we wrote the survey report.

A swoon did in fact occur, but it wasn’t in the investor sector.  Despite continued record low interest rates, affordable prices in most markets and improving access to credit, first-time buyers have faded dramatically.

The two best sources on first-time buyer and investor market share are surveys of real estate brokers and agents, one conducted by the National Association of Realtors, the other by Campbell Surveys for the Campbell/Inside Mortgage Finance HousingPulse survey.

NAR reports that approximately 31 percent of responding REALTORS® reported making a sale to first time home buyers, down from 32 percent in September. Normally first time buyers are in the neighborhood of 40 percent of total residential sales. First-time homebuyers peaked at 50 percent in 2009.  By contrast, investors accounted for 20 percent of total residential sales in October, up from18 percent from September.

The Campbell survey had different numbers but the same trend.  The first-time homebuyer share of home purchases fell to 34.7 percent in October. That was not only down from the 37.1 percent share seen as recently as June, but also the lowest first-time homebuyer share ever recorded in the HousingPulse survey. Investors saw their share of non-distressed property purchases inch higher from 11.3 percent to 12.2 percent over the past five months.

Photo: Marcia Todd

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.

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