Tom Lawler pulls out an interesting piece of data from the latest housing statistics. Foreclosures have been dropping in 2012, mainly because of the rise of short sales as a foreclosure alternative. This appears to be changing – the repossession rate in November was 11% above that of October and even up 5% year-over-year – but Lawler is looking back at data, not forward at the recent trend.
The interesting thing Lawler finds is this:
While most areas have experienced a significant decline in the foreclosure share (as well as the overall “distressed-sales” share of home sales this year, it’s sorta interesting to note that the all-cash share of homes purchases has not fallen, at least in areas where data on financing are available. [...]
While in most of these areas the foreclosure sales share of resales in November was down considerably from last November, as was the overall “distressed” sales shares, the all-cash-financed share of home sales was actually higher this November than last November in many areas, and in other areas it was little changed from a year ago. Most analysts (and realtors) believe that investors make up a substantial share of all-cash purchases. Given that the all-cash share of purchases is flat to higher while the foreclosure share of purchases is down considerably, it appears as if investors have considerably increased their purchases of non-foreclosure properties over the last year.
So investors have shifted from merely scooping up foreclosure properties to scooping up all kinds of other properties. This suggests that demand from Wall Street is moving investor purchases into other areas of the mortgage market. Maybe you have motivated sellers using short sales to push properties into the hands of investors. Or maybe investors are over-extending themselves. Having set a budget for a certain level of properties, and finding the foreclosure markets more scarce, maybe they’re buying homes they think are undervalued, regardless of the fundamentals of that decision. Maybe this will make it harder to eventually sell them on the back end, if they’re not getting them for a steal.
What does this say about the character of neighborhoods that these institutional investors are purchasing more and more of the housing stock in cash deals? Will the higher price paid for them – non-foreclosures are self-evidently more expensive than foreclosures – suggest the creation of another bubble? Are individuals getting pushed out of neighborhood in favor of these more attractive cash deals? And what happens in the aftermath? You suddenly have this group of investors who want to collect rent for a few years and then sell. What if there are no buyers? What if they’re buying too high? What if the aftermath results in a big drop in prices?
So many unanswered questions….
Photo by haglundc under Creative Commons license