Investors Can’t Resell

Anemic demand from owner-occupant homebuyers has forced investors to rent out about half of the homes they purchase — as opposed to renovating and flipping the properties.

Investor purchases of homes continued to decline for the third month in a row in July as investors were forced to adapt to new business models, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Investor market share plunged to the lowest level in a year. The HousingPulse Survey found that the investors accounted for only 19.6 percent of home purchase transactions in July. That was not only down from a 23.0 percent investor market share as recently as April.

The latest HousingPulse Survey results showed the proportion of first-time homebuyers in the housing market rose to 36.9 percent in July, from 35.4 percent in June. Meanwhile, the HousingPulse Distressed Property Index (DPI) climbed to 46.2 percent in July from 44.7% in June, indicating a high percentage of foreclosed property sales and short sale transactions in the housing market.

The gap between first-time homebuyers and distressed property supply was 9.3 percentage points in July, unchanged from June. Given that home purchases by current homeowners do little to absorb the supply of distressed properties, the housing market is increasingly dependent on investors to pick up any slack in purchases by first-time homebuyers.

But the inability of most investors to resell homes in the current housing environment has put a damper on their participation in the housing market this summer. Campbell Surveys estimates that investors will ultimately rent out 48 percent of the properties acquired in the month of July 2011. A comparable figure for the month of July 2010 would have been investors renting out 28 percent of acquired properties.

Significantly, real estate agents responding to the July HousingPulse survey indicated that the debate in Congress over the U.S. debt ceiling negatively affected homebuyer activity last month.

“I spoke with several would-be buyers who, because of the ridiculous behavior of our government, felt uneasy about purchasing at this time. This may be contributing to the hot rental market,” reported an agent in Washington State.

“Investors seem to want to profit from the unease of owner-occupant buyers, but the economic problems cause them to make lower and lower offers,” observed an agent in Connecticut. “Investors were active, with cash to spend. Owner-occupants demonstrated fear and indecision,” added an agent in Texas.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.