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How Far will Investors Fade?

How Far will Investors Fade?

The bloom may be officially off the boom in investment sales as they declined in 2013 for a second straight year after soaring in 2011 at the height of the large foreclosure inventories. Investor purchases declined 15.9 percent last year from the 1.23 million sales peak set in 2011.

Investment-home sales fell 8.5 percent to an estimated 1.10 million in 2013 from 1.21 million in 2012. By comparison, owner-occupied purchases rose 13.1 percent to 3.70 million last year from 3.27 million in 2012. The sales estimates are based on responses from households and exclude institutional investment activity according to NAR’s 2014 Investment and Vacation Home Buyers Survey.

NAR Chief Economist Lawrence Yun said the pullback in investment activity is understandable. “Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discounted foreclosures over the course of the year,” he said.

“In 2011 and 2012, investment property was a no-brainer because home prices had sharply over corrected during the downturn in many areas, creating great bargains that could be quickly turned into profitable rentals. With a return to more normal market conditions, investors now have to evaluate their purchases more carefully and do their homework,” Yun added.

The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012.

All-cash purchases remained fairly common in the investment- and vacation-home market: 46 percent of investment buyers paid cash in 2013, as did 38 percent of vacation-home buyers.

Of investors who financed their purchase with a mortgage, large down payments continued to be the norm in 2013. The median downpayment for investment buyers was 26 percent, while vacation-home buyers typically put 30 percent down.

Forty-seven percent of investment homes purchased in 2013 were distressed homes, as were 42 percent of vacation homes.

Investment-home buyers in 2013 had a median age of 42, earned $111,400 and bought a home that was relatively close to their primary residence — a median distance of 20 miles.

Fifty percent of investment buyers said they purchased for rental income, 34 percent wanted to diversify their investments or saw a good investment opportunity, and 22 percent bought for a family member, friend or relative to use — often to house a son or daughter while attending college.

Seven percent of homes purchased by investment buyers last year have already been resold, and another 10 percent are planned to be sold within a year. Overall, investment buyers plan to hold the property for a median of 5 years, down from 8 years in 2012.

Thirty-eight percent of investment properties purchased last year were in the South, 25 percent in the West, 18 percent in the Northeast and 19 percent in the Midwest.

 

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