Investor buys in home market continue to fall

March 31, 2011
by Steve Brown/Dallas Morning News

Buy at the bottom and sell at the top — in a perfect world, that’s how investment works.

Of course, things rarely turn out that way.

A few years ago, when the U.S. home market was booming, investors, hyped up with easy mortgage money, flooded the housing market, paying top dollar.

Now that prices have plunged and bargains abound, home investment shows no sign of an uptick so far.

During 2010, investment home purchases around the country dropped by almost 8 percent. They now account for about 17 percent of total annual U.S. home purchases, according to a new study by the National Association of Realtors.

Back in 2005, when the market was hot, 30 percent of homes sold went to investors — more than 2 million property sales.

I bet many of those buyers who paid a median price of $183,400 in 2005 wish they’d put their money in a mattress. Of course, most of it was borrowed.

The median price of investment homes purchased nationwide last year was just $94,000, the Realtors say. And almost 60 percent of those acquisitions weren’t financed but made with cash.

So much for leverage.

With millions of foreclosed homes filling the home market, the hope is that investors will take many of those properties off the market.

But so far, their response has been muted. Only about 17 percent of investor home acquisitions in 2010 were made through foreclosure or trustee sales.

Investors who’d like to take advantage of depressed home values say they are hobbled by tougher mortgage lending standards.

“The ability to get a loan for investment has gotten 10 times harder than it was four or five years ago,” said George Roddy of Foreclosure Listing Service. “That market has substantially declined. And it’s due to availability of funds.

“There are a lot of cash buyers out there, though.”

In some U.S. markets, there’s also a concern that home prices will go lower.

Indeed, after a short rebound, home prices in the Dallas area have dipped almost 6 percent below where they were last summer. The value of homes in North Texas is roughly where it was in early 2004, according to numbers from the closely watched Standard & Poor’s/Case-Shiller Home Price Index.

The Dallas area, of course, has suffered only about a third of the home-price meltdown the rest of the country has seen during the last few years.

Here and in other markets, an increase in investor purchases could be one answer to the surplus of houses on the market.

In Texas, there’s more than an eight-month supply of “shadow inventory” homes that aren’t yet listed for sale but soon will be, a new report shows. They are houses that are scheduled for foreclosure or soon will be.

And nationwide, about 13 percent of homes are sitting vacant.

Sales to investors would put some of these properties back into use.

“It’s better than letting them sit there and decline in value,” Roddy said.

Courtesy The Dallas Morning News
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