Investors Shifting Focus to New Mortgage Markets

A year ago in the U.S. housing market, everyone seemed to be concerned about a looming shadow inventory of foreclosures that would flood the country and pull home prices back into a sinkhole. If that inventory even exists and is still coming, it seems there is a large investment crowd that is ready and willing to gobble it up, leaving little room for falling prices.

According to recent research from JPMorgan Chase, the nation’s largest investment companies have a combined total of roughly $10 billion that they are looking to pump into the single-family home rental market.

And the sale contracts back that up. In November, all cash-purchases made up 30 percent of all transactions and investors – who typically do most the cash deals – accounted for 19 percent of all the sales that month, according to the National Association of Realtors.

Investment sales have been so hot, in fact, that they have actually picked several cities clean of their distressed properties and are now moving on to others. Phoenix, for example, has been a major investment town for the past year, with investors making up 36 percent of the home sales in August at the peak. After being devastated by the housing downturn in 2008, Phoenix’s rock bottom prices and plentiful supply of foreclosed homes, investors swooped in like vultures. And as more and more investors tried to get in on the action, the competition pushed prices up and helped clear out the distressed properties. But higher prices also make it a less attractive market to investors.

In November, only 28 percent of sales were made to investors and prices had climbed 24 percent since the previous year. Compare that to the national average home price gain of 7.4 percent and it is easy to see why investors have moved on to markets like Atlanta, Las Vegas and Tampa.

While all this investment is good for current homeowners who see their home equity increase as the foreclosure inventory dwindles, it is making it tough on many traditional home buyers, especially first-timers, to get into their own markets. Hopefully as the investors move on to other cities, the market will equalize with more inventory relative the prospective buyers.

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