May 31, 2011 (Shirley Allen)
This years spring home buying season is off to a slow start according to Radar Logic’s RPX Monthly Housing Market Report for March 2011, but investors have jumped in to help fill the void by making a relatively strong showing in the foreclosure market.
Radar Logic reports that the increase in the transaction count through March 24 was the smallest increase for that period since they began accumulating data, as sales of homes that are were not foreclosures had only increased by less than half as much as they usually do during that same time period.
Sales of foreclosed homes had increased just slightly less than its average gain for that same period over the last four years.
“Investment buyers are driving sales of foreclosed homes, but they have largely ignored the rest of the market,” said Quinn Eddins, Director of Research at Radar Logic.
The report notes that investors are driving sales of foreclosed homes but have been largely ignoring the rest of the market due to the price advantage that foreclosed homes have over non-foreclosed homes which leads to a larger return on investment.
Foreclosed homes on average were priced at a 39 percent discount compared to non-foreclosed homes. Investors believe that the ability to purchase foreclosures at such a large discount cushions them from possible losses against future home devaluations where as sellers of non-foreclosed homes have not lowered their prices to a level where investors feel confident enough that they can make an adequate return on their investments.
As a result, home prices have also been feeling the squeeze as price increases have not been nearly as robust as previous years. With foreclosed homes becoming a larger segment of the housing market, the RPX composite showed prices only increased 0.5 percent in the 25 major metropolitan areas that it surveys compared to an average of 1.5 percent during the same time period in previous years (not counting the bust years of 2008 and 2009).
I guess this helps explain why the National Association of Realtors reported existing home sales declined over 11 percent in April.
Tags: Radar Logic, spring buying season, investors, home sales, foreclosures, non-foreclosures, devaluation, investment, home prices