An Investor-Driven Recovery
John Burns Real Estate Consulting
By Erik Franks
August 22, 2012
Investors
are buying homes at a more rapid pace than ever before, and this time
their investments actually make sense. Most are buying homes below
replacement costs, or at prices that allow for a reasonable rental
return.
Across
the 167 metro areas we analyzed, investor activity rose to 29.6% of all
transactions in the first quarter of this year, up from the trough of
23.6% in Q4 2009. Our on the ground research leads us to believe Q2
activity exceeded Q1, and since last quarter, investor activity has
already spiked 2%! In fact, John Burns just recently sat next to someone
from Toledo who was flying to Orange County, Ca to flip homes!
Investor
activity has returned to the markets where investors got burned the
most. These markets include Stockton, Miami, Las Vegas, Riverside-San
Bernardino, Sacramento and Phoenix. Some markets are now completely
dominated by investors, such as Las Vegas (50% of all activity) and
Phoenix (46%).
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Small
markets are also attractive to investors, especially in inland
California (Merced, Modesto, Bakersfield, Vallejo, etc.) and second home
buyers are also sensing the bargains, causing huge increases in Naples,
The Villages, Tucson and Panama City.
The
naysayers will surely point to these facts as a false recovery. While
they are technically correct, we are not concerned at all, and are
embracing the return of private capital. Most of these investors are
paying all cash and buying homes below replacement cost. They are
helping the market recover by removing supply at the low end of the
market and driving real buyers to higher price points, including new
homes. We don't see a scenario where they dump their homes en masse on
the market unless it becomes crystal clear that home prices are headed
down again.
We are hyper-focused on the potential positive result, which is that rising prices get fence-sitting consumers off the fence. We are seeing this occur in some pockets around the country.
(c) John Burns Real Estate Consulting
