Investor participation dropped drastically in July, reversing a trend of long-term growth in investor purchases of residential properties. According to the report, investor activity in the housing market fell to 21.9 percent of all transactions in July, down from 23.5 percent in June. July’s decrease also established a two-month trend of declines from May’s two-year peak of 25.3 percent.
Real estate agents who responded to the HousingPulsesurvey said that recent home price gains led to the sharp reversal in investor interest.
Some agents reported the shift in activity is driven by the savvier investors who know when to back off. One agent in Arizona said any participation in July was from “dumb investors” entering the market as “smart” investors leave.
“Investors need a deal. There are not as many opportunities as there was this time last year. It seems all the rookie investors are buying now and paying too much,” said another agent from Florida.
The disappearance of investor activity also reflects a change in the market. According to HousingPulse’sDistressed Property Index, (DPI) the proportion of distressed properties in the housing market fell to 42.2 percent in July from 45.1 percent in June and 46.1 percent in May. The falling distressed inventory may have driven most investors off, the report speculates.
A decline in investor participation was also apparent in the non-distressed market, however, with investor purchases making up an 11.5 percent share of July’s non-distressed sales, a dramatic fall from 14.4 percent in May.
On the other hand, homeowner activity continued to rise in July, with homeowners accounting for 43.5 percent of purchases, up from 42.0 percent in June. Participation by first-time homebuyers stayed fairly flat.
Use of cheap mortgage financing by current homebuyers increased strongly in June and July, but rising mortgage rates may cause problems for demand and prices.
“Overall homebuyer demand and home price appreciation is being driven by historically low interest rates,” said Thomas Popik, research director for Campbell Surveys. “But savvy investors are the canaries in the coal mine-they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down.”