Investors Back in the Market, Cash is King

Investors are back in the market, and they’re paying all-cash, mostly for property under $500,000. The effect is to freeze out first-time home-buyers who need a loan. Banks are still chary about providing loans. About the only loans left for first-time buyers are FHA and VA loans.

So, while the first-time buyer is working through the loan process, the investors are swooping in and buying the best property, which, after making minor repairs, they are putting back on the market. Sometimes, they rent out the property hoping for more appreciation down the road.

Appraisals are also affecting buyers who need a loan. Appraisals lag the market because they use past data, typically six months worth, to calculate current market value. When a market has bottomed out and begins rising, appraisals often come in under the value agreed upon by the buyer and seller. Banks are requiring buyers to come up with extra cash to make up the difference. First time buyers are having a hard time doing this, so we’re seeing many more sales fall out of escrow than normal.

Another thing hanging over the market is the so-called “shadow inventory” of bank-owned property that has not been put on sale. How many properties the banks are holding is a mystery, but, they may not be accumulating as many as the pundits believe. Large investing companies are buying multiple properties at the foreclosure auctions. The banks have finally realized it’s better to take their losses there rather than go through the time and expense of re-habbing and putting the properties on the market..

Home and pending sales were down in January, which is not unusual at this time of year.

The decline in sales is not a result of reduced demand, we are seeing multiple offers on the best properties in the best neighborhoods, rather it was produced by a lack of inventory, or should I say, a lack of desirable inventory.

We expect sales to regain their momentum through the Spring because of the extended tax credit and because this is historically the prime time for home sales. After that, all bets are off.

Remember, the real estate market is a matter of neighborhoods and houses. No two are the same. For complete information on a particular neighborhood or property, call me.

P.S. The FHA requires all condo projects to be re-certified before they will make a loan. To find out if the condo project you’re interested in is eligible, go here: https://entp.hud.gov/idapp/html/condlook.cfm