Investors are capitalizing on historically low home prices and interest rates while many Americans question the safety of home ownership. Image: Flickr/Georgivar CC-BY-SA
Existing home sales rose nearly 4 percent from January to February, according to the National Association of Realtors. Most of the home buying is being done by investors snapping up cheap houses in regions where high foreclosure rates are driving down home prices. First-time home buyers are staying away in what is being described as a cultural shift away from home ownership as the American dream.
Investors pad home sales stats
Investors throwing down cash on foreclosures and short sales drove up existing home sales last month to an annualized rate of 5.1 million. Foreclosures and short sales accounted for 40 percent of all purchases. Cash deals accounted for 35 percent of all sales, the highest percentage since the National Association of Realtors began tracking cash deals. The bulk of investor activity took place in markets hit hardest by foreclosures, including Phoenix, Las Vegas and Tampa. The 40 percent foreclosure sales figure could be higher; the Realtor group’s data tracks individual investors but not homes sold at auctions and bought by private equity firms. A tell-tale sign of investor activity is a 10 percent year-over-year rise in sales of homes less than $100,000. In the past year, sales of mid-priced homes fell more than 14 percent.
First time home buyers an endangered species
Sales among first time home buyers fell to 33 percent in March. According to the NAR, that figure would be about 40 percent in a healthy housing market. Although real estate is more affordable than it has been in a generation, a survey conducted by Fannie Mae found that at the end of last year, the number of people who said a home was a safe investment fell to 64 percent from 70 percent when the year began. The December figure was the lowest recorded by the survey, which began in 2003, when 83 percent of respondents believed in home ownership. But even during the housing crisis, owning a home was safer than most investments. During the peak of the housing crisis in 2008 the median home price in the U.S. dropped 15 percent compared with a dive in the Standard & Poor’s 500 Index of more than 38 percent. By the end of 2010, about 11 million homes in the U.S. were worth less than their mortgages, according to CoreLogic.
Re-thinking the American dream
A growing number of Americans are giving up on home buying, even though real estate is more affordable than it has been in 40 years, based on NAR data on home prices, mortgage rates and median U.S. income. The median U.S. home price plummeted 32 percent from its 2006 peak to a nine-year low in February 2011 — worse than the 27 percent decline recorded in the first five years of the Great Depression. Borrowing costs have also been historically low. According to Freddie Mac, the average rate for a 30-year fixed mortgage in 2010 was 4.69 percent, the lowest since 1972. According to the Census Department, the U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade. In March, the percentage of Americans who plan to buy a home in the next six months fell by 23 percent.
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