While this is clearly not the case in every market, I was surprised to see that investor participation in the housing market dropped sharply in July, establishing a two-month trend and showing a clear reversal of long-term growth in investor purchases of residential properties, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
I expected that as prices moved higher, investors would flee, I just didn’t expect it to happen so quickly. I guess all the investors that drove the market in this report are out of it now. However, this can be just one more confirmation that the market is looking up.
Investor participation in the housing market fell to 21.9% of all transactions in July, from 23.5% in June, based on a three-month moving average. Investor participation back in May of this year hit a two-year peak of 25.3% of all transactions.
Real estate sales associates responding to the HousingPulse survey indicated that recent price increases caused the sharp reversal in investor interest. ?Investors are dropping out due to the increase in prices,? reported an agent in California. ?Prices are too high here for investors,? added an agent in Massachusetts.
?Smart money? is beginning to leave from the market, according to HousingPulse survey respondents. ?Investors are having a hard time finding what they want. Starting to see not-so-savvy investors enter the market, the ?smart? ones are exiting the buying,? reported an agent from Arizona. ?Investors need a deal. There are not as many opportunities as there was this time last year. It seems all the rookie investors are buying now and paying too much,? observed an agent in Florida.
The proportion of distressed properties in the housing market fell sharply to 42.2% in July, from 45.1% in June and 46.1% in May, according to the HousingPulse Distressed Property Index (DPI). While investors often concentrate their purchases on distressed properties, the decline in investor purchases was also apparent in the non-distressed market. Investors bought 14.4% of non-distressed properties in May, but only 11.5% in July?a precipitous two-month decline.
In contrast to investors, current homeowners showed strong interest in buying homes, accounting for 43.5% of home purchases in July, up from 40.3% in May and 42.0% in June. Participation by first-time homebuyers was mostly flat. Use of cheap mortgage financing by current homeowners increased strongly during the months of June and July.
?Overall homebuyer demand and home price appreciation is being driven by historically low interest rates,? commented Thomas Popik, research director for Campbell Surveys. ?But savvy investors are the canaries in the coal mine?they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down.?
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.
For more information on the survey, go to housingpulse.com.