November 23, 2011 (Chris Moore)

Distressed properties accounted for nearly half of the homes sold in October as investors increased their presence in the housing market while distressed property purchases by first-time homebuyers declined according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Sales of distressed properties increased to 48.4 percent of the housing market in October, up from 44.4 percent in September. Investors grabbed 22.3 percent of all the closed transactions in October.

Investors have accounted for over 20 percent of the monthly housing transactions since August. The strong demand for rental property and the low prices of distressed properties have been behind the surge in investor purchases.

The average price for a damaged REO property in October was $101,100, the lowest price for damaged REO in two years and far below the average price of $266,700 for non-distressed residential properties.

Campbell Surveys estimates that 61.6 percent of the properties purchased by investors end up as rentals with the rest of the properties being flipped.

“Given the current conditions in the market here locally, many of the investors are purchasing homes to rent until the market turns around then possibly looking to sell in a few years. Yes, at this point renting homes is a better option than flipping because the gap between what an investor can buy a house, fix it and flip it does not cover the cost of re-selling it,” said an agent from California.

Investors have also encountered the same problems that real estate agents have been complaining about – tight lending standards in today’s housing market are making it difficult to secure financing for property purchases, which makes turning a distressed property purchase into a rental a more attractive option until lenders loosen their credit criteria.

“The rental needs are great, and since no one can GET a mortgage, fix and flips are dying,” observed an agent in Colorado.

First-time homebuyers also became less active in the housing market in October as the gap between the supply of distressed properties and their absorption by first time homebuyers increased to 13.7 percentage points, up from a reading of 8.8 percentage points in September.

A real estate agent in Las Vegas noted that inventories in the area were dropping, which may lead to investors becoming more aggressive with their offers.

Tags: distressed properties, rental properties, low home prices, investor purchases, first-time homebuyers, housing market, strong demand

Campbell/Inside Mortgage Finance