Magazine article Mortgage Banking

Investing in Recovery

Magazine article Mortgage Banking

Investing in Recovery

Article excerpt

INVESTORS PLAY AN IMPORTANT ROLE in residential housing in addition to the obvious aspect of providing homes for rent, they also bring stability to the timing and level of home-price adjustments relative to the local economy.

As home prices decline, investors typically step in at the point where carry costs--the amount investors outlay before profits are realized--are less than expected rental income. This locks in a price for a property that may not otherwise have a purchaser for many months. When home prices are uncertain, investors take the risk--with the potential payoff when prices are higher.

When considering a home purchase, borrowers require that the deal is financially viable and also that the house and neighborhood are appropriate for them or their families. An emotional connection takes place--the buyers want to be able to "see" themselves in the home.

Investors just require that the purchase is a good deal--that it makes financial sense. Removing emotion from the mix supports a quicker return to market equilibrium. For the current recovery to prosper, we need investors to step in and prosper as well.

Residential real estate investors comprise about 6 percent of all borrowers, according to LPS McDash Loan Data. Consistent with this, in 2012, 6 percent of all residential purchases were made by investors. It is important to note, however, that these statistics are based on residential real estate investors who finance their deals through the mortgage market--not with cash or commercial loans.

Within this context, we will look at some of the geographic areas that most attracted investors in 2012.

Residential real estate investment patterns

LPS' data shows that top states for investment in 2012 were California, Florida, Texas, Arizona and Virginia. More than three times as many investor loans were made in California as the next-largest sate--Flonda

In general, investment properties were well spread out across states and metropolitan areas. But looking further, we can see patterns that reflect thoughtful investment in areas that might otherwise wait many months for homeowner-occupants to take the risk.

Some investors buy low. …

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