Investors Continue Gradual Pullback

September 23, 2014

Investors are gradually pulling out of the housing market after helping to propel it to double-digit gains in 2012 and 2013.

Twelve percent of existing-home purchases in August were made by individual investors, a drop from 16 percent a year ago, according to the National Association of REALTORS®' latest housing report. During the housing crisis, investors had been making up nearly one-third of home purchases, and in some markets, even more than half.

Why are they leaving the market now?

"Investors are concerned with a potential rise in interest rates," says Lawrence Yun, NAR's chief economist. "It makes it less attractive in a rising interest rate environment."

Home prices increased last year, and values are up nearly 5 percent from a year ago. Coupled with that, the number of distressed properties — which investors long have been attracted to for the deep discounts — have also fallen.

Some real estate professionals hope that less competition from investors will bring first-time home buyers back into the market.

"The reduction in appetite from investors has put a temporary lid on home sales that has yet to be offset by the first-time home buyer," writes Peter Boockvar, chief market analyst with the Lindsey Group. Overall, existing-home sales dropped 1.8 percent in August from July, according to NAR.

While they're lessening their buying sprees, investors appear to be holding onto the properties they have purchased and are not rushing to sell, housing analysts say. Rents have risen more than 3 percent from a year ago.

"We are really happy with our portfolio of homes," Aaron Edelheit, CEO of Atlanta-based The American Home, told CNBC. "Our demand for rental properties is strong. We have 95 percent rented." Edelheit says the company would not likely be buying any more homes, but renting the ones they have. The company currently owns about 2,400 single-family rental homes.

Source: “Investors Leaving Housing High and Dry,” CNBC (Sept. 22, 2014)