Investors have played a big role in the housing market since the beginning of the recovery. However, some areas are seeing a peak now, leading investors to move on to other markets.
Attractive Prices, Excellent Returns
Investors have been looking at foreclosures to purchase homes, fix them, and rent out. With the low prices, it’s been an excellent return on their investment. However, as purchase prices rise, some markets are seeing a decline in investor buys.
Phoenix is one city that has lost its popularity with investors, as the percentage of homes bought dropped from 36 percent in August to 28 percent in November. Much of this is due to the competition between investors, which drives the prices upward. The price increase cuts into the profits that investors hope to make.
Investors have been a primary component to the improvement in the housing market, because they have the money to buy with the potential for a handsome return. As more families get back on their feet, home purchases will continue to shift to them.
Where Investors are going
As certain areas max out their potential for investors, other markets provide incentive. Many investors are looking to the southeast, such as Atlanta and cities in Florida, for home purchases. Buyers are focusing their attention on areas that were hardest hit by the housing crisis with plenty of options for purchase. They also look at job growth and potential for renting in those areas. Many of their renters are families that went through foreclosure.
Investors focus their attention on homes with three bedrooms and two baths in the $100,000 to $125,000 price range. They expect to be able to charge at least $1,000 a month for rent. However, these properties are getting harder to find as more investors compete with them for the purchase. Where an investor might have been the only one looking at a property, now you have at least two or three bids on each one.
For many of the interested parties, this isn’t a long-term investment. They’re looking for a way to make money for a few years while waiting for price appreciation. A good percentage of these investors are small operations.
California is another area that has seen the market for investors max out. Now, areas like Tampa, Chicago, Las Vegas, and Atlanta will likely see an increase. In Atlanta, investors make up 40 percent of home sales. This will only last a short time though, until the market gets saturated by investors and the prices go up. Returns will drop from 10 to possibly 6 percent, which may be too low for some companies looking at rentals.
As housing prices increase and more homeowners are able to buy again, competition for buying a home will only be tighter. The time for investors to capitalize on a buyer’s market is quickly running out.