Typically, housing recoveries have been driven by demand from buyers looking for a home to call their own, but this time, investors are playing a bigger role.
According to the National Association of Realtors, roughly 30 percent of homes are sold to cash buyers, most of whom are investors. And, due to rising rental demand from previous homeowners who foreclosed, investors are holding onto the rental properties, rather than turning them for a quick profit as they did during the housing bubble.
It's not unusual for investors to play a significant part in housing recoveries, says Rick Sharga, executive vice president of Carrington Mortgage Holdings in Santa Ana, Calif., but low mortgage rates still attract individual homebuyers.
"I do believe investor behavior is accelerating the housing market recovery, but I don't believe it is causing the recovery," Sharga says. "What's different this time around is the type of investor; we're seeing more institutional investors; and the fact that most investors today have a buy-and-hold mentality rather than a buy-and-flip mentality," he adds.
Investors are responding to rental demand, which Sharga believes is likely to continue rising for the next couple of years. That demand is attracting large private equity companies that are buying up tracts of homes in communities and renting them to families.
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Sharga says another interesting development in the real estate market is an increase in foreign investment, particularly in South Florida and Northern California. "These investors are looking for the opportunity to buy hard assets instead of paper," he says. "Especially in Europe, sovereign debt, for example, is not so attractive right now, but U.S. real estate is still seen as a safe investment."
For traditional homebuyers, the investor activity means the inventory of for-sale homes will continue to be low and those seeking financing will have a little bit of a disadvantage, Sharga says. "Often financing falls through and, for the seller, all-cash is an attractive deal." Serious homebuyers who have their financing in place, and can offer a higher price than an investor, will have the best shot at closing the deal.
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