Investor Cash Adding Downward Pressure on Home Prices

by devteam January 23rd, 2012 | Share

Cash buyers, principally investors, mayrnbe putting downward pressure on home prices according to the Campbell/InsidernMortgage Finance Housing Pulse Tracking Survey released Monday.  The survey found that investors with cash inrnhand are able to offer something that homeowners dependent on mortgagernfinancing cannot, a guaranteed sale with a quick closing timeline.  This seems to offset the desirability of arnhigher bid with a mortgage contingency.   </p

ThernHousing Pulse survey found that the trade-off between price and speed isrnparticularly true with offers on distressed properties because the lenders andrnservicers liquidating the properties generally prefer transactions that canrnsettle within 30 days.  The Campbellrnreport states, “While investor bids may not be thernfirst offers accepted, they often end up winning properties after otherrnhomebuyers are eliminated because of mortgage approval or timeline problems.rnAppraisals below the contracted price are a common reason for mortgage denials.rnMost mortgage financing timelines are now in excess of 30 days.”</p

Thernsurvey reports that 33.2 percent of home buyers in December were cash buyers,rnup from 29.6 percent in December 2010. rnHowever, 74 percent of investors came to the table with cash.  This is especially striking as the surveyrnfound that investors accounted for 22.8 percent of home purchases in December,rnchanged only slightly from 22.2 percent in November.  But, Campbell says, “Despite their relativelyrnsmall share among homebuyers, investors have an outsize effect on home prices becauserntheir bids bring down market prices.”</p

Real estate agents responding to thernsurvey commented on the low bids they are seeing from investors.  Campbell quoted anecdotal information from arnfew agents indicating they are seeing investor bids 10-20 percent below listrnprices, but with quick closings.</p

The total share of distressed propertiesrnin the housing market in December continued at a three-month moving average ofrn47.2 percent, the 24th consecutive month that the HousePulsernDistressed Property Index (DPI) was over 40 percent.</p

The Campbell/Inside Mortgage FinancernHousingPulse Tracking Survey involves approximately 2,500 real estate agentsrnnationwide each month and provides up-to-date intelligence on home sales andrnmortgage usage patterns.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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