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Investors and the housing recovery

As we have been discussing over the past few weeks on my blog, the housing market is really rebounding – home prices are up, pending sales are up, new home starts are up, and the levels of available inventory continues to drop.

The question being asked is, with job growth continuing, but slowly, and a slow growing economy, why is the housing market rebounding?

The answer is investors.  The upturn in the housing market is being fueled by investors, not by consumers buying a first or second home.  It is the investors who are scooping up the flood of distressed properties that have hit the market over the past few years.

Currently investors represent about a third of buyers, with owner occupiers and second home buyers representing the other two thirds.  As the inventory of homes for sale continues to fall, everyone is competing for a smaller pool of homes.  Additionally, the investors are coming to the table with cash, making their offers more attractive to sellers.

While all this investor money has fueled the real estate recovery, people are beginning to worry about the impact of having so many absentee landlords, and communities full of renters.  The landlords are not around to be part of the community, and watch over the condition of their property.  These investors also do not always have experience in managing properties.

So, at the end of the day, consumers are finding themselves outbid on properties they want to buy and live in as their primary home, because the investors have cash.  Because home prices are so low and are expected to continue rising, investors feel comfortable making offers that are sometimes above the market value of the home.  For a consumer trying to buy that same home with a mortgage, the home won’t appraise for what the investors are willing to pay, so the consumers lose out.

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