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.

Investor purchases of homes continued to decline for the third month in a row in July as investors were forced to adapt to new business models, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Investor market share plunged to the lowest level in a year. The HousingPulse Survey found that the investors accounted for only 19.6 percent of home purchase transactions in July. That was not only down from a 23.0 percent investor market share as recently as April.

The latest HousingPulse Survey results showed the proportion of first-time homebuyers in the housing market rose to 36.9 percent in July, from 35.4 percent in June. Meanwhile, the HousingPulse Distressed Property Index (DPI) climbed to 46.2 percent in July from 44.7% in June, indicating a high percentage of foreclosed property sales and short sale transactions in the housing market.

The gap between first-time homebuyers and distressed property supply was 9.3 percentage points in July, unchanged from June. Given that home purchases by current homeowners do little to absorb the supply of distressed properties, the housing market is increasingly dependent on investors to pick up any slack in purchases by first-time homebuyers.

But the inability of most investors to resell homes in the current housing environment has put a damper on their participation in the housing market this summer. Campbell Surveys estimates that investors will ultimately rent out 48 percent of the properties acquired in the month of July 2011. A comparable figure for the month of July 2010 would have been investors renting out 28 percent of acquired properties.

Significantly, real estate agents responding to the July HousingPulse survey indicated that the debate in Congress over the U.S. debt ceiling negatively affected homebuyer activity last month.

“I spoke with several would-be buyers who, because of the ridiculous behavior of our government, felt uneasy about purchasing at this time. This may be contributing to the hot rental market,” reported an agent in Washington State.

“Investors seem to want to profit from the unease of owner-occupant buyers, but the economic problems cause them to make lower and lower offers,” observed an agent in Connecticut. “Investors were active, with cash to spend. Owner-occupants demonstrated fear and indecision,” added an agent in Texas.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.

Property Portfolios

Two property portfolios have been created and their values are monitored since the first quarter of 2001. The first portfolio, Property Portfolio 1 represents a conservative investment in residential real estate, acquiring residential property in Charlotte, Dallas, Salt Lake City, Houston, Albuquerque, and Charleston (WV). The second portfolio, Property Portfolio 2 represents an aggressive investment in residential real estate, acquiring property in Tampa, Ft. Myers, Washington, DC, Orlando, Los Angeles, and Las Vegas. Both portfolios were valued at $30 million in the first quarter 2001. Property values for both portfolios are determined by the median home price in each metropolitan area.

Property Portfolio 1

(As of May 14, 2009)

Highlights

•  The value of the moderate portfolio declined by 3.69% in the first quarter of 2009 vs. the first quarter of last year
• Two of the six metro markets (Dallas and Salt Lake City) recorded slight increases in the median price of a single-family home
• After the shortlived spike of the value of the portfolio in the second and third quarter of 2008, the value of the portfolio retreated under forty million dollars

Real Estate Property Portfolio 1
	Value of Portfolio	% Change from last year
Q1 2007	39,492,120	6.44
Q2 2007	42,408,185	7.58
Q3 2007	43,245,893	6.98
Q4 2007	41,136,490	3.20
Q1 2008	39,893,773	1.02
Q2 2008	42,390,711	-0.04
Q3 2008	42,211,296	-2.39
Q4 2008	39,353,005	-4.34
Q1 2009	38,422,057	-3.69

Note: Real Estate Property Portfolio 1 includes Charlotte (NC), Dallas (TX), Salt Lake City (UT), Houston (TX), Albuquerque (NM), and Charleston (WV).

Property Portfolio 2

(As of May 14, 2009)

Highlights

• The value of the aggressive portfolio declined by 35.92% in the first quarter of 2009 vs. the first quarter of last year
• The median price of a single-family home went down in all the markets that comprise this portfolio
• The value of the portfolio has been declining since the second quarter of 2007 and is now only 5.76 million dollars over the initial investment

Note: Real Estate Property Portfolio 2 includes Tampa (FL), Ft. Myers (FL) Washington (DC), Orlando (FL), Los Angeles (CA), and Las Vegas (NV).

Note: The Real Estate Equity Portfolio includes Bank of America, Sun Trust Bank, Centex, Lennar Homes, PMI Group, Radian, Home Depot and Lowe’s.