Low Priced Foreclosures and High Hopes for Appreciation Draw Investors Back to Real Estate

Affordable prices, foreclosures priced at a discount and expectations of healthy appreciation rates over five years are bringing investors back to the housing markets in droves.

The number of consumers interested in investing in real estate has doubled since March 2009, according to a new Move.com Homeownership Survey released. One out of eight (12.1 percent) homebuyers plans to purchase a home as an investment property, compared to 5.6 percent seven months ago.

Low prices coupled with high expectations for short-term appreciation are motivating most investors to buy foreclosures.  Most foreclosure buyers (58.2 percent) expect to pay 20 percent or less than market price for a foreclosure, while 38.5 percent expect a 25 percent or greater discount. Seventy-three percent expect their properties to appreciate ten percent or more in five years, 28 percent expect their purchases to appreciate 20 percent or more during that same investment horizon. According to the Federal Housing Finance Administration’s Purchase Index, homes have appreciated an average of 15 percent nationally since 2004.

Foreclosure buyers, accounting for 25.3 percent of consumers interested in purchasing a home, are a major source of potential investment activity for today’s housing market. Forty-two percent (42%) of potential foreclosure buyers regard their purchases as investments, while 57.6 percent plan to live in the foreclosed home themselves. Foreclosure investors, according to the Move.com survey, intend to convert their foreclosures into rentals (13.2 percent), fix them up for re-sale (11.3 percent), or house a family member until the home can be sold at a profit (17.4 percent). Of the forty-two percent interested in purchasing a foreclosure as an investment, survey respondents ages 35 to 49 (52.6 percent) were by far the largest demographic.

“This latest Homeownership Survey validates what many had hoped to see in the housing markets — affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market,” said Move, Inc. Chief Revenue Officer Errol Samuelson.

The Move.com survey also found that while perceptions related to affordability have improved in four months, most Americans are still unaware of how affordable homes are today. In June 2009, more than three-quarters (76.4 percent) of Americans said they thought a family earning the national median income of $52,029 could afford 50 percent or fewer of the homes for sale in their area. Today only half (50.4 percent) of all Americans say a median income family can afford 50 percent or fewer of the homes for sale in their neighborhood, a 26 percentage point improvement in just three months. In fact, a median income family today can afford approximately 70 percent of the homes listed for sale on the Move Network of real estate Web sites.

“In the past year, affordability has improved significantly, especially for first time home buyers, and is higher now than at any time the past two decades,” said Samuelson. “Even more encouraging is that 34.1 percent of survey respondents said they expect median income families will be able to afford more than 50 percent of the homes in their neighborhood a year from now. This sentiment is especially true with people ages 18 to 34, the nation’s next group of first time homebuyers.”

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