That’s the thesis behind a new study from New Vista Asset Management, a San Diego-based provider of real estate services for banks and other sellers of foreclosed residential homes.

New Vista found that over the past three years the percentage of REO homes sold to owner occupant buyers has decreased in 18 of the nation’s counties hit hardest by foreclosures.

“Although, quarter-by-quarter, we have observed some market-specific increases, over the entire period, owner occupancy rates for REO sales have broadly weakened,” said Brian Hurley, New Vista’s president and chief operating officer. “With eleven consecutive quarters of data, we can look beyond both seasonality and the temporary impact of demand stimuli such as the homebuyer tax credit, and observe a clear pattern of decline.”

Hurley added that the pace and scale of decline vary widely across markets. In Los Angeles County, California, for example, the New Vista data shows 79.36 percent of single-family REO houses were purchased by owner occupants in 2009, compared with only 60.32 percent in the third quarter of 2011. Most counties covered by the study saw declines of more than five percentage points during the same period, with a few dropping more modestly.

Only one county included in the Index, Wayne County, Michigan, had an owner occupancy rate for single-family REO sales below 50 percent in 2009. By the third quarter of 2011, owner occupancy rates for REO sales in an additional four of the studied counties had fallen below 50 percent, including Maricopa County, Arizona; Osceola County, Florida; Miami-Dade County, Florida; and Clark County, Nevada.

Owner-occupant buyers are losing out to investors for several reasons. Many REO sellers are choosing lenders paying with all cash over buyers in the process of securing financing. New lending standards, higher down payments and extended approval times all make it more difficult for owner-occupants, especially first-time buyers and minorities, to secure financing in a timely manner to compete for affordable

Formerly the executive in charge of the California market for Stewart Title, Hurley became concerned when we heard stories about potential homeowners consistently losing out to investors. “I’m very familiar with many HUD studies that show the importance of homeownership to communities,” he said.

Hurley said New Vistas is publishing its study to respond to a growing focus on investor-driven solutions to the nation’s residential real estate crisis. “Several initiatives now under consideration promise to channel more houses to investors rather than to owner-occupant purchasers,” Hurley observed. “We timed the first release of our study to raise awareness of the community impacts that current REO disposition practices are already having. Bulk sales, drop-bid foreclosure auctions and proposals under review by FHFA promise to move more REOs out of local real estate markets and out of the hands of owner occupants, out of the reach of local real estate professionals, and out of the capital base of the communities themselves. Before the market adopts new strategies to address an expected surge in foreclosure volumes, we wanted the owner-occupancy impact of current approaches to be well understood.”

Hurley has no “tipping point” ratio of ownership to rental, but he will continue track the competition for REOs between investors and potential owner-occupants in the initial 18 counties. He plans to expand the number of markets and issue quarterly reports.

According to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investor purchases hit 22.3 percent of closed transactions for the month of October, up from just 19.6 percent as recently as July. For the past three months, investor participation has exceeded 20 percent, continuing a long-term trend of increased investor interest in the housing market.

All-cash sales accounted for 29 percent of purchases in October, little changed from 30 percent in September and 29 percent in October 2010; investors make up the bulk of cash transactions.

The National Association of Realtors reported yesterday that its survey of Realtors found that investors purchased 18 percent of homes in October, compared with 19 percent in September and 19 percent in October 2010. First-time buyers accounted for 34 percent of transactions in October, up from 32 percent in September; they were 32 percent in October 2010.

A combination of low home prices and growing demand for rental units make purchasing damaged Real Estate Owned (REO), fixing up the properties, and then collecting monthly rents, an attractive financial play, the Campbell survey reported. In October, average prices for damaged REO hit $101,100, the lowest price recorded in two years. In contrast, home prices for non-distressed residential properties averaged $266,700 in October. Distressed homes - foreclosures and short sales typically sold at deep discounts - slipped to 28 percent of sales in October from 30 percent in September (17 percent were foreclosures and 11 percent were short sales); they were 34 percent in October 2010.

One factor pushing down average home prices overall is the high proportion of distressed properties found in today’s housing market. The total proportion of distressed home sales, as represented by the HousingPulse Distressed Property Index (DPI), rose a full 4 percentage points to 48.4 percent in October, up from to 44.4 percent in September.

Meanwhile, the gap between the supply of distressed properties and their absorption by first-time homebuyers widened to 13.7 percentage points in October, from a reading of 8.8 percentage points in September. This shows that first-time homebuyers have become less active in the distressed property housing market.

“However, in some areas we’re hearing about shortages of foreclosure inventory in the lower price ranges with multiple bidding on the more desirable properties,” said NAR Chief Economist Lawrence Yun. “Realtors in such areas are calling for a faster process of getting foreclosure inventory into the market because they have ready buyers. In addition, extending credit to responsible investors would help to absorb inventory at an even faster pace, which would go a long way toward restoring market balance.”

Demand for rental units remains strong. Campbell Surveys estimates that 61.6 percent of investor properties purchased during the month of October will be rented out, with the remainder being flipped.

“Investors are prominent in the city of Las Vegas. They both flip and rent and buy properties in bulk. Renting single family homes is an extremely viable option and seems to be a growing trend in the valley with the decreasing of prices. Our inventory is dropping so we are seeing more investors becoming aggressive with their offers,” reported a real estate agent from Nevada in the latest HousingPulse.

“Given the current conditions in the market here locally, many of the investors are purchasing homes to rent until the market turns around then possibly looking to sell in a few years. Yes, at this point renting homes is a better option than flipping because the gap between what an investor can buy a house, fix it and flip it does not cover the cost of re-selling it,” added an agent from California.

Greg Rand, CEO of OwnAmerica, downplays concerns over near term price declines and urges investors to take a long view of the opportunities.

“This is a long term investment,” said Rand, who differs with what he calls the “get rich quick” approach to investing.  “Rents are a steady return on your investment through the years, leaving you with an attractive asset when prices improve.  And they will.  The best profits in real estate accrue to long term investors who take a long term view.”

Rents are growing at a 5.17 percent annualized rate compared to a 4.72 percent at this time last year Assuming effective rent grows at the same rate in the next four months as it did in 2010, the full-year total would fall just below the historic highs of 2000 (6.18 percent) and 2005 (5.81 percent), according to a report from Axiometrics Inc., a provider of data and analysis on the apartment market.

With 1.4 million new renters this year, apartment construction can’t keep up with demand.  Tenants, especially former homeowners forced from their homes because of the economy, are increasingly turning to single family homes owned by investors, especially in high foreclosure markets like Las Vegas.

During this year, investors have accounted for between 20 and 40 percent of monthly existing home sales, according to surveys of Realtors by Campbell/Inside Mortgage Finance and the National Association of Realtors. Yet, the investor market share may increase even more next year.

A survey by Realtor.com in April found that by a three to one margin, investors plan to be more active in their local markets compared to typical homebuyers in the next 24 months, and 69 percent of investors say it’ll be easier to find properties in the near future.

Most investors are newcomers.  Fifty-nine percent (59 percent) said they’re new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property.  Another 17 percent said they just completed their first transaction and plan to make more.  Only 36.5 percent have experience in more than one property transaction.

Author of “Crash! Boom,” Rand argues that even in the Great Depression, owning real estate was always better than not owning real estate. Holding real estate for the long term has always been a formula for success and most family wealth has been accumulated by purchasing real estate and keeping it in the family for many generations. real estate plus time usually equals success.

There are 6 million people who went from being owners to being renters, Rand said. “The stars are aligned to make this the best time in modern history to be a landlord,” he wrote in his book.

A national survey of Coldwell Banker agents found that 87 percent of 1300 agents and brokers polled have Baby Boomer clients who already own or are looking to own an investment property.  Some 22 percent of agents report that at least half of their Boomer clients either own or are looking to own such properties.

“The baby boomer generation has driven the U.S. economy for years, and like many Americans, they may be anxious about their next real estate decision,” said Jim Gillespie, CEO of Coldwell Banker Real Estate. “I know baby boomers are a very diverse group and cannot be described in generalities, but our survey clearly indicates that those boomers who are financially secure are actively seeking to buy their retirement home, or a second home, and they are taking advantage of the opportunities and value available in today’s market.”

“Those who can afford to pay all cash for a property at 30 to 40 percent below what it was worth actually have a positive cash flow when they rent it out,: said Coldwell Banker President Jim Gillespie.  Gillespie is so strong on the importance of encouraging greater investment in residential real estate that he’s in favor of extending the depreciation period for real estate investments.

Bob Hamrick, chairman & CEO at Coldwell Banker Premier Realty in Las Vegas, said investors in his market, which may lead the nation in single family rentals, are buying properties based on the rental income they will generate, not necessarily for resale potential.

“There’s almost no timeline for resale.  Investors are looking at a 10 percent or greater return on their money that they can’t get anywhere else, knowing that down the road they’ll be able to sell a home they bought for $150,000 but someone else before them paid $450,000 for,” he said.

Families forced from their homes by defaults in the Las Vegas market are looking for single family homes and their only choice is to rent.  Over time they can repair their credit and save for a down payment to qualify again as buyers, he said.

Seven of the top ten markets in the nation whose media list prices are up year over year are Florida markets.  According to the latest data from Realtor.com, the world’s largest real estate site, Florida single family home and condo prices are zooming at the same time that the rest of the nation is still recovering from the first quarter’s double dip.

Unlike most sales and price reports which are surveys of a representative sample of transactions or indices based on just a few markets, Realtor.com’s report is based on the actual data from the 2.2 million listings in the 146 markets in its data base.  However, Realtor.com captures only the prices for which properties are listed, not actual sale prices.  Nor does it know when sales are closed, only when listings come and leave the site’s inventory.

August median prices in Fort Myers are up 33 percent from 2010. Miami is up 24 percent, Punta Gorda 20 percent, Sarasota-Bradenton 10 percent, Daytona 9.3 percent and Lakeland-Winter Haven 8.8 percent. Compare those increases to the national average increase for median list prices from all 146 metros tracked by Realtor.com: .46 percent.

These amazing year over year numbers are not simply the result of being compared to prices during the August 2010 nose dive following the end of the tax credit.  They are the real thing.  A handful of Florida markets have been leading the Realtor.com hit parade since the end of the first quarter.

With a high saturation of condos, resort, retirement and second homes, these markets were devastated by a combination of foreclosures evaporating demand.  Massive inventories of distress sales and slow absorption drove prices to peak lows.

Florida has a long way to go to get healthy.  The median property in a number of Florida markets has lost half its value or more since 2006.  The peak to trough price differential in many Florida markets is over 50 percent, among the greatest in the nation, according to Case-Shiller.  In Miami, for example, prices fell over 50 percent and didn’t trough until the double dip in the first quarter of this year.  Prices in Fort Lauderdale fell from 2006 at least 46 percent to 2010. Naples fell 52 percent.  Tampa, 43 percent.  Orlando, 51 percent.

It makes sense that at some point bargain prices like these in prime Florida markets will attract investors, both foreign and domestic, and there have been bargains indeed.  In Vero Beach, for example, the discount on foreclosures reached 53 percent in the second quarter; state-wide the media discount was 40 percent according to RealtyTrac.  By all accounts that seems to be the case. In several markets, notably Orlando, Sarasota, Lakeland and Miami, demand has been strong enough to bring supply and demand into close enough balance to reduce median time for listings in inventory by five to 25 percent.

Why then are markets like Jacksonville, Tampa and Orlando, where prices fell nearly as much as South Florida markets, not participating in the renaissance?  Discounts, deals and demand-such as it is-don’t tell the whole story.

The answer may be fewer foreclosures, and in turn, reduced inventory.  What differentiates markets like Fort Myers and Miami from Tampa and Orlando not just geography by a significant decline in foreclosure filings in South Florida that began early this year and reached 60 percent year to year decline in foreclosure activity in July and August.  Inventories are higher in northern Florida markets.

Miami-Dade County recorded 3,352 foreclosure-related actions in August, a 61 percent decrease from a year ago. Broward County had 2,806 foreclosure actions, a 63 percent decrease, while Palm Beach County recorded 2,035 foreclosure-related actions, a 66 percent decline, according to

During the second quarter of 2011, foreclosure actions plunged by 51 percent in the tri-county South Florida region compared to the same three-month period in 2010, according to a new report from CondoVultures.com, a site listing condos.

Fewer filings means fewer REOs are being listed, which has contributed to the significant reductions in inventories shared by all of the markets were pries are zooming.  Almost all have reduced their inventories in the past 12 months, some dramatically.  Since last year inventories of condos and single family homes are down 41 percent in Fort Myers, 47 percent in Miami, 32 percent in Punta Gorda, 33 percent in Sarasota, 32 percent in Daytona and 38 percent in Lakeland.

How long will the Florida phenomenon last?  Will double digit price increases discourage bargain hunters and encourage local owners to list their properties and dilute the inventory vacuum that has been behind the price?  Is the foreclosure fall off a result of servicer processing delays rather than fewer defaults?  Or is it just the beginning of a recovery trend in markets that have suffered most?

Perhaps Bank of America answered that question when it doubled its foreclosure filings in South Florida in August.  With a default rate well into the double digits, Florida still ranks number one in defaults.  Until the larger economic picture improves, it’s hard to believe the Florida price phenomenon will last much longer.

“Florida, particularly South Florida, is still in a real estate crisis and experts predict it will take a couple of years for Florida to win its battle over this downturn…Looks like there are going to be lots and lots of good bargains here in beautiful South Florida for those with the wherewithal to purchase them,” says Florida real estate attorney Rosa Eckstein Schechter.

A study by Sean O’Toole of ForeclosureRadar found that third party investors are much faster at reselling foreclosures than banks, though the difference varies by area. In Oregon banks take an average 156 days longer to sell inventory than 3rd parties while in Washington it took banks only 52 days longer. California banks on average took 104 days longer than 3rd party investors; whereas Arizona and Nevada banks both took an average of 70 days longer to move inventory than 3rd party investors.

“Our statistics clearly show that real estate investors continue to far outperform banks in dealing with distressed properties,” says Sean O’Toole, CEO and Founder of ForeclosureRadar, “yet politicians and bureaucrats are putting pressure on banks to become landlords, which will hurt local economic activity, as fewer properties are made available to local investors, also impacting their Realtors, contractors, and property managers; as well as to home buyers in need of affordable housing.”

Foreclosure activity fell to a 44-month low in July as fewer homeowners default on their mortgages but banks continue to process foreclosures at an even slower rate, creating a form of extended Chinese water torture for housing markets.

A recent report from Lender Processing Services found that the average foreclosure now takes 587 days to process and resell.

Despite the downturn in overall foreclosure activity. lenders repossessed a total of 67,829 REO properties in July, a 1 percent decrease from the previous month and a 27 percent decrease from July 2010. The July REO total was 34 percent below the monthly peak of 102,134 bank repossessions in September 2010, RealtyTrac reported last week.

Lower prices and the strong Canadian dollar are encouraging one in five Canadians to buy U.S. property today, according to a new survey of by the Bank of Montreal.

Overall housing prices in the United States have fallen by 30 per cent over the past four years. However, prices in regions that are traditionally destinations for Canadian snowbirds have dropped even more. For example prices in Tampa have dropped 44 per cent, Phoenix, fell 54 per cent, Las Vegas, 57 per cent, and Miami, 49 per cent.

“Now, with the American economy and employment gaining strength, home sales should pick up and put a floor under soft prices,” said Sal Guatieri, Senior Economist, BMO Bank of Montreal. “We expect prices to rise over time as the overhang of unsold homes eases.”  Guatieri added that beyond this year over the long term the U.S. dollar should strengthen as well. This would provide an opportunity for capital appreciation for Canadians who purchase U.S. property at a low price while the Canadian dollar was high.

Regionally, those in Alberta (31 percent), British Columbia (28 per cent), and the Prairie Provinces (27 per cent) are most interested buying property in the U.S, according to the survey by Leger Marketing, which was conducted immediately after Spring Break, a time that traditionally draws Canadians to Florida beaches and Arizona deserts.

Last year Canadians were the largest source of foreign investors in U.S. residential real estate, accounting for 21 percent of all foreign sales, according to the National Association of Realtors. International buyers were active throughout the U.S., but seven states (Florida, California, Arizona, Texas, Georgia, New York, and Nevada) accounted for 65 percent of the volume.

Canada’s real estate, by contrast, has been tough on bargain hunters.  The national average price for homes rose 8.8 per cent year-over-year in February.  The Canadian Real Estate Association said the national average price for a home rose to $365,192 in February, but that includes a record number of multimillion-dollar home sales in the Vancouver area that skewed the average price numbers.

 ”When you take Vancouver out of the equation, the year-over-year increase in the national average price drops to 3.4 per cent,” Gregory Klump, CREA’s chief economist said in a statement.   ”While that’s still stronger than in the past six months or so, national average price gains may recede after tighter mortgage regulations take effect in March.”

All-cash home sales are setting records in market after market around the country as investors account for a growing share of home purchases and individual buyers, especially first-time buyers, fade as mortgage rates rise and home buyer demand softens further.

According to the National Association of Realtors, buyers paid cash for 23 percent of all homes bought in January, the highest share since NAR started measuring cash versus credit sales in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

Washington DC’s MRIS, the nation’s largest MLS, reported yesterday that cash purchases jumped 35 percent in 2010, to 16.4 percent of all purchases in 2010, 12.1 percent of all purchases in 2009. But the cash bandwagon is rolling even faster other major markets around the country.

The hottest cash hot spots are in California and Florida, popular investor markets. Cash buyers accounted for a record 30.9 percent share of the Golden State’s houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems. 

Almost three out of 10 homebuyers in San Diego County in January closed with cash, the highest it’s been in 21 years, Some 28 percent of new and resale homes bought in the county last month had no records of mortgages, matching the percentage of cash purchases one year ago during the same time. In the nine-county Bay Area, 28.7 percent of homes sold in January did not show a record of a mortgage, compared with 26 percent a year earlier. That was a record for the region, which has averaged about 12.4 percent of monthly sales being for cash over the past decade, according to DataQuick.

In January this year, a record 23.4 percent of the homes sold in the Seattle Metro were purchased by buyers paying cash, compared with 21.0 percent in December and 19.6 percent in January 2010. The monthly average is 11.3 percent since 1994, when DataQuick’s complete statistics begin for the Seattle region.

“Most sellers would rather deal with the certainty of cash rather than the uncertainty of buyers who need to qualify for a loan,” said Andrew LePage, an analyst with DataQuick told the San Diego Union Trib.  “Some of this is from investors using cash so they’ll be first in line when there are multiple buyers bidding,”

Cash sales in Las Vegas, another destination popular with investors, accounted for 54.5 percent of total January sales.  Last month’s level of all-cash purchases was up from 50.6 percent in December and 50.4 percent a year ago.

About 54 percent of home purchases in Palm Beach, Broward and Miami-Dade counties were cash buys in the final quarter of 2010. That’s about 7,530 homes and condominiums between October and December that were paid for in cash.

 In South Florida’s real estate zenith of 2006, just 13 percent of sales were in cash. In pre-boom 1997, cash buys made up 31 percent of the market.

 Of 11 major metropolitan areas in the country, South Florida had the highest percentage of cash buys in the fourth quarter of last year.

 ”I haven’t pulled a mortgage in six months,” said Corcoran Group agent Anthony Pizzarelli, who specializes in downtown West Palm Beach condos told the Palm Beach Post. “You just have a lot of people with a lot of cash running around.”

The quality, as well as the quantity, of many bank-owned properties in the REO inventory is creating a drag on home values because they are difficult to sell in today’s market, Scott Sambucci, vice president of Altos Research, said yesterday in a Webinar for investors.

 Many foreclosed homes have been vacant for a year or more and need major repairs and maintenance.  Investment is needed get them ready to move in and first time home buyers generally don’t have the cash to spend on major repairs.  Investors and speculators are traditionally the “motor oil” between REOs and first time buyers, buying them at deeply discounted prices and fixing them up to sell, Sambucci said.

But lower prices are making it difficult for speculators to flip REOs, making it even more difficult to move them in some markets. Banks have to lower prices to sell them, making them a drag on home values. 

Sambucci expects prices to fall an additional 5 to 10 percent nationally next year before hitting the long-awaited trough and beginning a slow climb to recovery, sometime before the end of 2011. Critical factors shaping the market next year will be the uneven quality of the REO inventory, the rising size of the inventory and declining demand.

The recovery will proceed at a slow pace, taking several years, from 2012 to “2014ish”, Sambucci said.

“Next year will be a good time to get into market if you can afford to stay,” he said.

Interest rates below 5 percent and prices bottoming out in the first half of the year will drive two of the three main ingredients for buyer affordability to cyclic lows next year, Freddie Mac’s chief economist said yesterday.

Whether buyers will step up to the plate, however, is still anybody’s guess.

“Buyer affordability is at the highest level in decades,” said Freddie’s Frank Nothaft. “With affordability high, many first-time buyers will be attracted to the housing market in the new year, likely translating into more home sales in 2011 than in 2010.”

Though they will rise above their present level, Nothaft expects rates on 30-year fixed-rate loans to remain below 5 percent throughout the year, and initial rates on 5/1 hybrid ARMs will likely remain below 4 percent in 2011.

As for home prices, Nothaft said price indexes for the U.S. as a whole are likely close to bottoming out but local markets with large inventories of for-sale homes and REO properties will continue to see weakness in 2011. “Most experts look for single-family U.S. indexes to bottom out in the first half of 2011, with a gradual (but sustained) recovery after that,” he said.

The National Association of Realtors’ Affordability Index for the third quarter reported one of the most affordable buying markets since the inception of the index in 1971, he noted.

Though conditions for buyers will improve next year, whether buyers are in the mood to take the plunge is another story.  A consumer survey by Fannie Mae over the third quarter found that consumers are less confident about buying a home even though they agree with Nothaft that mortgage interest rates will not go up and prices will continue to decline.

Consumers also are less confident about home prices going up, a home purchase being a safe investment, and their personal finances.

The number of Americans in the Fannie survey who think it is a good time to buy a home dropped to 68 percent (down 2 percentage points since June). An overwhelming majority of Americans (85 percent) think it is a bad time to sell a house.

 A final reason for buyer reluctance is that the perception that buying a home is a safe investment continues to decline among Americans.  In the Fannie Mae survey, buying a home ranked second to putting money into a savings or money market account, and ranked just 1 percentage point ahead of putting money into an IRA or 401(k) plan.