Investors Losing Interest in Housing, Despite Rise in Distressed Sales Share

Institutional investors appear to be losing interest in purchasing foreclosed properties for rentals in the face of rising property prices and interest rates and increased competition from homebuyers.   According to RealtyTrac's January 2014 U.S. Residential and Foreclosure Sales Report, the share of home sales tied to institutional investors - entities that purchase ten or more properties in a calendar year - dropped to 5.2 percent in January, down from 7.9 percent in December and 8.2 percent in January 2013.  The January number was a 22 month low.

Daren Blomquist, a RealtyTrac vice president said, "Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening.  It's unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago."

The fall back in institutional investors occurred in nearly three-quarters of the metropolitan areas tracked by the Irvine California company.  Areas with particularly large declines from a year earlier included Cape Coral-Fort Myers, Florida (-70 percent); Memphis (-64 percent), Tucson (-59 percent), and Tampa (-48 percent).  Institutional activity increased in 23 of the 101 areas with Austin, Texas notable for a 162 percent rise while Cincinnati was up 83 percent and Dallas 30 percent.

Institutional investment remains a major factor in sales in several areas including Jacksonville, Florida at 25.5 percent, Atlanta, (25.1 percent), and Austin (18.0).

Sales of all U.S. residential properties including single family homes, condos, and townhomes were at an estimated annual rate of 5.126 million units in January, a less than 1 percent increase from December and up 8 percent from a year earlier.  The rate of sales declined in seven states and 17 of the 50 largest metropolitan areas.

RealtyTrac said that foreclosure-related and short sales accounted for 17.5 percent of all residential sales in January, up from 14.9 percent in December.  In January 2013 distressed properties accounted for 18.7 percent of sales.  The distressed sales breakdown in January as a percent of all sales was 5.9 percent short sales, 10.2 percent bank owned real estate (REO) and 1.5 percent properties sold at foreclosure auction.

All-cash sales accounted for 44.4 percent of all U.S. residential sales in January, the seventh consecutive month where all-cash sales have been above the 35 percent level.  In several metro areas the majority of sales were all-cash; Miami (68.2 percent), Jacksonville, (66.2 percent), Memphis (64.4 percent) Tampa (61.5 percent) and Las Vegas (56.5 percent.)

The national median sales price of U.S. residential properties - including both distressed and non-distressed sales - was $165,957 in January, down 3 percent from December but up 1 percent from January 2013. The 3 percent monthly decrease was the biggest monthly drop since February 2013.  Some of the markets which had shown the fastest appreciation posted declines in January.  Some cities where prices fell 1 to 2 percent were San Francisco, Sacramento, Memphis, Cincinnati, Phoenix, and San Jose.  Prices in each, however, were a minimum of 19 percent above year-ago levels.