Sales of Homes for Investment Purposes On the Decline

As reported in the August 2014 REALTORS® Confidence Index Report, sales to investors fell to 12 percent of home sales in August, from the average of about 18-20 percent in 2010-2013. One reason for the decline is that as foreclosures have eased there are now fewer available distressed properties for sale. Distressed sales (foreclosed property and short sales) have steadily declined from about 16 percent of existing home sales in 2010 to only 8 percent as of August 2014 (Chart 1).

Another reason is that home prices have been rising more rapidly than rents since 2012 (Chart 2), creating fewer opportunities for a quick profit recovery. Since 2012, the median home price of all existing homes rose by an average of 9 percent annually, while rents rose at an annual average of about 3.2 percent. As of August 2014, the median home price of all existing homes was at $ 219,800, just a few thousand shy of the peak price of $229,000 in June 2007. Although about 50 to 70 percent of investors pay all cash, rising home prices have also made it more difficult to put up only cash to purchase a home.

As investors will increasingly retreat from the market, the continued recovery of the housing market will need to be taken up by first-time buyers (e.g., the millennials) and those buying property to trade up (also millennials) or down (baby boomers).

CHART 1
Capture

CHART 2
Capture2