The trend has caught the attention of the local news media with the San Francisco Chronicle and San Jose Mercury both running long articles on the topic in recent weeks. In her article, Chronicle reporter Carolyn Said noted that, “Real-estate investors have become a potent force in a moribund housing market…” She went on to say that, “despite record low interest rates, many consumers simply don’t have enough confidence in their economic outlook to buy houses. Investors have kept prices from falling further…” Today’s market is extremely attractive to investors. Record low mortgage interest rates, coupled with very favorable asking prices for distressed properties and other entry level homes, mean that rental income can easily cover the expenses for a new landlord owner. And given the volatility in the stock market and with other investments, real estate is looking like a better and better alternative. While not everyone would agree, I think real estate investors are playing an important role in our market. When they buy, they’re often upgrading properties that in many cases are badly in need of maintenance. They’re helping to clear out the supply of vacant, bank-owned properties that can be a blight on neighborhoods. And in general, they’re reducing the huge inventory of distressed properties that serve to keep all home prices down. “The market would be quite a bit sicker were it not for investors snapping up a lot of the properties,” Andrew LePage, an analyst at DataQuick, told the Chronicle. “They account for a meaningful portion of the demand. To the extent to which there’s at least a temporary floor under this market, they’ve helped to build it.” However, real estate investors – many of whom are paying all cash for entry-level properties – are making it hard for some first-time buyers and others to compete for those homes. Given the choice, it’s understandable that a seller would opt for a cash offer that’s likely to close quickly rather than take their chance that a buyer can secure mortgage financing. Unlike past investors, today’s new landlords are generally not expecting to quickly flip a home for a profit, according to the Chronicle story. Instead, they see are seeking reasonable returns by simply owning and managing a rental property. Realtors who work with these buyers say that many are first-time investors who like the long-term potential of investing in real estate over other investment vehicles. With prices and interest rates this low, they reason, there may never be a better time to jump in. It’s also important to remember that most housing recoveries are preceded by a rise in rental housing rates. This has two effects, both positive for our housing recovery. The rise in rents attracts more investors as purchasers. As we noted earlier, they also unfortunately cause stiff competition among first-time buyers; but in some areas these investors are necessary to help stabilize hard-hit foreclosure areas and thus stabilize pricing. The other effect of rising rental rates? It causes more renters who qualify for homeownership to consider a purchase, especially with today’s interest rates. As we approach a New Year, we are expecting more and more of both types of buyers in 2012 to come to the same conclusion.
Woodside Real Estate Update
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