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Single-Family Investment Activity Hits Record High, Reports CoreLogic

Ralph McLaughlin of CoreLogic

HOUSTON – (By Dale King, Realty News Report) – Investors, speculators and “mom & pop” wheeler-dealers are buying up homes at a record pace either to rent, flip or knock down and rebuild, says a national home purchasing activity report just released by CoreLogic Inc.

In fact, the account says the portion of homes in the US market being acquiredby folks who never intend to live in them reached 11.3% at the end of 2018 – the largest percentage ever recorded since CoreLogic started tracking this data in 1999.

The investment purchase rate in 2017 was the second highest on record at 11%, just above the investor buying rage of 2012 – 2014 when acquisition rates reached 10.3% to 10.9%.

Analysts expected that surge to drop when the post-recession buying spree ceased. But instead, after a brief dip, it continued to rise, fueled by strong rental demand, the ease of purchasing homes online and low mortgage rates.

The housing report came up with a couple of other striking discoveries, said Dr. Ralph B. McLaughlin, deputy chief economist for CoreLogic who drafted the document.

For one thing, he said, “the increase isn’t the result of big institutional buys, but rather from smaller ‘mom and pop’-style purchasers just getting into the game. These investors seem to be focusing in the starter-home tier, giving first-time home buyers a run for their money while also chasing homes in markets with relatively high rents.”

“We also found that investor home-buying rates vary sharply across the country, with the highest rates east of the Mississippi River and the lowest rates to its west. Each of the top 10 metros with the highest investor purchase rates is in the eastern half of the country. Just two of the top 10 are western cities: Des Moines, Iowa and Oklahoma City at 18.7% and 17.2%, respectively.”

Investor activity tends to be lowest in the West, McLaughlin repeated, and that’s where Texas finds its niche.

“The State of Texas is below average for institutional buyers, with El Paso at the very low end, 5.9%.” Only 6% percent of homes in Austin are bought by people who don’t intend to live there; in Dallas, 8.1% and Houston, 9%. While these percentages are all low compared to the eastern metros, he said, they are still the highest investor-purchase statistics in history for these Lone Star communities.

The five markets with the smallest amount of investor activity are all west of the Rockies, including Ventura, California; Boise, Idaho and Oakland, San Jose and Sacramento, California at 4.8%, 4.8%, 5.1%, 5.2% and 5.3%, respectively.

The three non-western markets with lower activity include Elgin, Illinois, Frederick, Maryland and Worcester, Massachusetts at 5.4%, 5.6% and 5.9%, respectively.

The CoreLogic researcher said price and potential are major charms of homes in older American cities. But investors’ true magic touch is cash. With their deep pockets, they can often outbid first-timers or millennials for homes, even offering more than the asking price.

The report focuses on the rise of small stakeholders. “The percentage of these investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018. Large investors – those who purchased more than 101 homes – nearly doubled their activity between 2000 and 2013 but have pulled back since the foreclosure crisis and now sit at 15.8% of purchases.”

Medium-sized investors – those who purchased between 11 and 100 homes – have also seen their share steadily fall, from a peak of 30% in 2010 to 22.7% in 2018.

Despite this housing hoopla, McLaughlin is reluctant to declare absentee owners detrimental to would-be buyer-occupants. “The evidence isn’t conclusive because there’s a possible chicken-or-egg relationship between the two.”

“While it’s certainly possible that an increase in investors into a market increases competition and lowers supply relative to aggregate demand, the opposite is also possible. Markets with tightening supply could draw investors as they perceive markets with dwindling numbers to be safer bets than those with a more plentiful supply.”

There is, however, a perception that purchasers who never intend to become neighbors are not welcome in neighborhoods full of owner-occupied residences. In South Florida, for example, a number of homeowner associations and property owner associations require buyers to live in their units for a year or two – or more – before renting them.

This method does work, McLaughlin said. “Without restrictions on property, more rentals would be on the market.”

The CoreLogic economist concluded that “given what we know, investor purchases will increase if mortgage rates remain low. It’s a truism that homebuyers today are more likely to cross paths with investors during an open house than at any other time in the past two decades.”

June 24, 2019 Realty News Report Copyright 2019

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