Housing Investors Pulling Back Amid Fewer Bargains

WSJ

By CONOR DOUGHERTY

Sales of existing homes posted a year-over-year decline in February for the fourth consecutive month and are at the lowest level since July 2012, as other indicators note investors buying fewer properties.

Blackstone LP has dramatically slowed its purchase of single family homes, particularly in the formerly distressed Sunbelt markets like Atlanta and Miami. With prices rising and the number of available foreclosures falling, there are fewer bargains to be had.

The story comes on the heels of an earlier announcement that the buyout firm, after spending billions buying single family homes for rent, has broadened its focus to lending money to other smaller real estate investors.

While Blackstone has a big name, it is far from the only big investor pulling back. Institutional-investor purchases, while still above year-ago levels, have fallen dramatically over the past two quarters, according to data from RealtyTrac. Institutional investors bought 44,087 properties in the fourth quarter of 2013, down from a peak of 60,648 in the second quarter of last year 2013.

While the data aren’t adjusted for seasonal variations that included a brutal winter last year, the investor share of overall transactions fell to 5.62% in the fourth quarter from a peak of 6.23% at the beginning of 2013, according to Realty Trac. RealtyTrac data tracks investors who buy 10 or more properties in a market, so the overall investor share would actually be much higher if “mom and pop” investors were included. (The National Association of Realtors has a broader index, which shows the share of sales by investors little changed since last year at around 21%)

Today’s drop in existing home sales looks to be caused in part by declining affordability. The problem is that, just as rising prices have scared off investors, they have caused prospective homebuyers to pause as well. Redfin, the real estate brokerage, said California home sales fell to a five year low in the 11 markets it serves in the state. Surveys of local real estate agents in Phoenix, Las Vegas and Sacramento showed the same. And while many of these surveys look at home closings, a survey of buyer traffic from Credit Suisse — an indicator of closing in the future — showed a marked decline in February, suggesting the spring selling season is getting off to a slow start.