Real estate investors are impacting traditional buyers

homebuyer-sellerAre investors to blame for the low inventory plaguing homebuyers in some markets?

Large institutional investors like The Blackstone Group have purchased as many as 16,000 homes in the past year. The company is now purchasing as many as 2,500 homes per month.

“The volume of purchases by investors has been overblown a little bit,” says Rick Sharga, executive vice president of Carrington Mortgage Holdings in Santa Ana, Calif. “Blackstone’s purchase was tiny when you look at it in the context of the four million property sales in 2012.”

Carrington says the impact of investors has been felt mostly in markets with a lot of foreclosures, such as Phoenix, where home prices increased rapidly as investors bought up properties. He says investors are now moving into Las Vegas, the Florida coast, in California’s central valley and in Chicago.

An investor’s impact on homebuyers

Despite the influence investors have had on home prices in some hardest-hit markets, Carrington says investors have had little impact nationally.

The biggest threat to a traditional homebuyer is an investor’s ability to pay cash, he says.

“There’s no question that investor activity in some markets will accelerate home price appreciation and that investors with cash typically have an advantage over traditional buyers. Sellers see cash buyers as a safer proposition because we’re still seeing loans falling out. Buyers with contingencies–like the sale of their home–are also at a disadvantage compared to investors.”

Furthermore, Carrington says the impact of investors can eventually be positive.

“This will be cyclical,” says Carrington. “As prices go up, fewer homeowners will be upside down and they will start to put their homes on the market, which will make it easier for traditional buyers to find a home. We’re also seeing a return of new home development and foreclosures are getting worked through the system, so within the next 12 months we may actually see a slight slowdown of appreciation as inventory issues ease.”

New strategy: Buy, hold, rent

Back in 2010, we first documented the phenomenon of investors switching from flipping properties to holding onto them for rental income, a pattern that remains relatively unchanged today.

Carrington says that institutional investors are “universally” choosing to buy and hold properties because they’re getting a good annual return on rents and expect to see property appreciation at the end of the real estate cycle.

In spite of investor activity, Carrington says he’s not seeing the increasing availability of single family rentals driving down rent prices.

“We’re still a long way from being over-capacity,” says Carrington. “For one thing, we’re starting to see household formation rise again after having been repressed by the recession. That keeps demand up for rentals.”

The final word

Carrington says he doesn’t see any danger of investors selling at the same time and creating a glut of inventory which would cause steep price declines.

“The most aggressive forecasts say that 30 percent of home purchases will be made by investors, but I doubt we’ll see that on a national basis,” says Carrington. “Besides, that leaves 70 percent of home purchases by traditional buyers.”


HSH Associates Financial News Blog

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