Institutional investors accounted for 10 percent of all sales in August, up from 9 percent in July and 9 percent in August 2012, reported RealtyTrac in its monthly foreclosure report released Thursday, September 26.
Only 8 percent of all the existing homes sold in August were foreclosures, and 4 percent were short sales. Thus were short sales, according the National Association of Realtors’ existing home sales report. That extra 2 percent came from either short sales, or more likely, from full-price properties listed on multiple listing services. Two percent of August sales amounts to 109,600 properties.
Hedge funds were buying in some of the hottest markets in American in a time when prices were rising 12.3 percent according to CoreLogic. Were they buying at a peak? Several experts, notably John Burns, saw a slowdown. “It is still a great time to be a buyer, although “market timers” should be more cautious in the most expensive markets (Northern California and New York in particular),” He said on CNBC. The opportunity to buy homes below replacement cost is mostly gone.
Where were big investors buying the most? Among metro areas with a population of 1 million or more, those with the highest percentage of institutional investor purchases were Memphis, Tenn. (31 percent), Jacksonville, Fla. (29 percent), Atlanta (22 percent), St. Louis (17 percent), and Detroit (17 percent), according to RealtyTrac.
RealtyTrac’s definition of an institutional lender is a lot broader than just hedge funds. It defines institutional investors as non-lenders who have purchased 10 or more properties over the previous 12 months. It’s a definition broad enough to include hedge funds, REITs, large turnkey investors and very active small investors who buy, rehab and sell properties to individual investors.
- On a national level, it is clear that big investors are making significant purchases at price points above the foreclosure inventory. To do so they must be either be buying more short sales or and/or full priced homes in the markets where they are most active.
- All-cash purchases represented 45 percent of all residential sales in August, up from 39 percent in July and 30 percent in August 2012, according to RealtyTrac. Among metro areas with a population of 1 million or more, those with the highest percentage of all-cash sales were in many of the markets where hedge funds and REITs have been most active: Miami (69 percent), Detroit (68 percent), Las Vegas (66 percent), Jacksonville, Fla. (65 percent), and Tampa, Fla. (64 percent).
- Big investor purchases are increasing, rather than decreasing, as prices rise. Total sales rose 1.7 percent from July to August at the same time that big investor share rose from 9 to 10 percent of sales. Higher than expected acquisition costs will put pressure on return on investment. States with biggest annual increases in median prices include California (up 32 percent), Nevada (up 26 percent), Georgia (up 21 percent), Arizona (up 20 percent) and New York (up 19 percent). Among metro areas with a population of 1 million or more, those with the biggest annual increases in median prices included San Francisco (up 35 percent), Sacramento (up 35 percent), Riverside-San Bernardino in Southern California (up 28 percent), Atlanta (up 28 percent), Los Angeles (up 26 percent), Las Vegas (up 26 percent), and Phoenix (up 25 percent.