May 20, 2011 (Chris Moore)
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey’s Distressed Property Index (DPI), fell slightly to 47.7 percent in April but predicts a continuing downward pricing trend as the absence of any government first-time buyers assistance has increased the gap between the number first time buyers on the market and the amount of distressed properties, which they traditionally are more likely to purchase. This has lead to an increase in investor activity in the market that then purchases the excess distressed properties at bargain-basement prices.
As Campbell/Inside Mortgage Finance explains, “First-time homebuyers absorb housing supply, while move-up and move-down buyers produce no net take-up in inventory. When the supply of distressed properties exceeds the demand from first-time homebuyers, investors must step into the market to buy these properties, often at bargain-basement prices.”
According to the HousingPulse survey, the proportion of first-time buyers in April fell to 35.7 percent versus 43.4 percent a year earlier, which was during the end of the government’s first-time buyer assistance program. Consequently, the gap between the number of first-time home buyers and the distressed property supply last year was 3.5 percent.
However, with the absence of any government assistance this year, the gap between first-time homebuyers and distressed property supply now stands at 12.0 percent. To help make up that gap, investors have stepped in and now account for 23 percent of the housing market in the month of April, compared to 18 percent a year earlier. And as the National Association of Realtors (NAR) noted in their recent existing home sales report, distressed properties generally sell at a 20 percent discount.
“The normal proportion of first-time homebuyers is about one-third of the market and that’s where we are now,” said Thomas Popik, research director for Campbell Surveys. “Unfortunately, that’s not enough demand to absorb the excess supply from homeowners defaulting on their mortgages. As a result, we expect existing home sales for the spring/summer buying season to be significantly below last year and that will put continued downward pressure on home prices.”
Plainly stated…too much distressed property supply, not enough buyers. An excess supply of distressed properties and a larger amount of purchases by investors means lower prices.
The survey also reports finding foreclosed homes in move-in ready condition has also been a problem. Forty-five percent of foreclosed properties were damaged and not inhabitable without renovation in April. Since mortgage lenders generally will not finance a home in that condition, investor usually step in and buy them for cash and in April, 55 percent of damaged foreclosed properties were bought by investors, 27 percent were bought by first time home buyers.
Respondents of the survey also reported that first-time homebuyers were having trouble obtaining mortgages due to tougher underwriting standards, with frustration of obtaining a mortgage and not finding the home they wanted as complaints commonly heard by real estate agents.
Tags: Campbell/Inside Mortgage Finance, HousingPulse Tracking Survey, Distressed Property Index, distressed properties, first-time buyers assistance, distressed properties, investors, bargain basement prices
Campbell/Inside Mortgage Finance