How real estate investors hurt home values

Five colorful houses in graduated sizes

Investors purchased just 19.6% of homes in July, falling to their lowest level in a year, according to the most recent HousingPulse survey conducted by Campbell/Inside Mortgage Finance.

This is kind of a bad news, bad news situation for the rest of us.

These buyers absorb the supply of excess housing on the market (which is good), but they tend to drag down home values for everyone else (which is bad).

Investors have been able to flip distressed properties for a profit despite the depressed housing market, but their ability to resell has declined significantly, which also could be bad news.

A year ago, investors were turning about a quarter of their purchases into rentals, according to the survey. Now, they’re expected to rent out close to 50% of recent purchases.

Investor purchases are not particularly good for a neighborhood’s owner-occupants for a number of reasons.

Investors often take advantage of their ability to pay cash to secure purchases below market price. Some investors buy foreclosures from banks at auctions or in lots, also at bargain prices.

What represents a deal for an investor, however, depresses the average sales prices in an area. When an owner-occupant wants to sell, he or she will have trouble commanding a good price.

Investor-owned properties that aren’t resold will either be rented out or sit vacant. Both outcomes can be bad for owner-occupants.

Vacant homes indicate low demand, which gives buyers the power to name their price.

Vacancies also invite property crimes such as trespassing, vandalism and theft, and they can become eyesores and even create safety hazards if their investor-owners don’t maintain them.

Renters keep homes occupied, which reduces the supply of homes on the market and helps support home prices. Occupied homes are also less attractive targets for criminals.

But renters don’t have a long-term stake in the property or in the community, so they may not keep the property in top condition.

CoreLogic data indicate that the number of renters should continue to rise as foreclosures proceed. The company reports that 3.5 million homes were foreclosed on from 2008 to 2010.

While the rental market is strong because of today’s housing and economic climate, investors desperate for cash flow might not choose the high-quality tenants that make good neighbors.

And even properties intended as rentals may sit vacant in markets especially hard hit by the housing crisis and the recession.

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