Competition for lower-priced homes in California is so hot that the number of cheaper homes available for sale has sunk more than 40% in the last year, pushing out many would-be buyers.
Homes that sold for $313,200 or less were the most competitive type of home nationally, but nowhere did inventory in that price range drop more than in the Golden State, according to a report released Thursday by real estate website Zillow.
In some parts of the Inland Empire, the supply of homes on the market is down to about a month’s worth, real estate agents say. Economists typically consider a six-month supply to be a healthy market.
The decline in homes for sale is frustrating many people interested in jumping into the housing market — home shoppers tantalized by the drop in prices and record-low mortgage interest rates.
Larry Rogers of Riverside, for instance, began the year with what he felt was a solid path toward retirement: buy two homes in the Inland Empire, pay them off before his golden years and live, in part, off the rental income. With a contractor’s license, a well-established business, plenty of cash and a high credit score, financing a home is not a problem, he said. The problem is finding one.
Rogers said he has gone into escrow twice and lost out both times, as other buyers have been willing to pay more. He has been shocked by competing investors paying $75,000 to $100,000 more than what he has estimated some homes to be worth.
“The big speculators have pooled all their money; they invest and they bid them up,” he said. “It’s crazy. Some of them, they pay pretty close to what it’s actually probably worth fixed up, but then by the time they put money into it, they are going to be $50,000 to $60,000 over.”
Cheaper homes — particularly foreclosed properties — have become highly attractive to investors, who have developed a sophisticated industry around buying properties, fixing and selling them or renting them out. Renting out foreclosed homes has increasingly emerged as an investment opportunity for Wall Street.
Financiers are busily studying ways to take the single-family home rental business, for years mostly a mom-and-pop affair, and make it a bigger industry. That has made it difficult for first-time shoppers to compete.
Wall Street groups increasingly are exploring ways of taking rental income from foreclosed homes and packaging those income streams into complicated securities, similar to the way big banks, packaged mortgages during the boom years.
The powerful New York-based American Securitization Forum on Wednesday sponsored a seminar examining whether initiatives by the federal government to turn bank-owned homes into rentals would help foster more private investment in the sector.
“First-time home buyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out,” Zillow chief economist Stan Humphries said. “Investors are paying in cash and can close sooner, which is more favorable to banks and homeowners looking to sell.”
While Wall Street has grown interested in low-end homes, real estate agents in California have bemoaned the lack of available properties for sale. Real estate professionals say the state can handle more foreclosures, and they have protested plans by the federal government to sell foreclosed California properties in bulk to investors.
“Sales would be even higher if inventory were less constrained … particularly in the Central Valley and Inland Empire, where there is an extreme shortage of available homes,” LeFrancis Arnold, president of the California Assn. of Realtors, said in a recent forecast distributed by the group. “Sales will be stronger in higher-priced areas, where there are more equity properties and a somewhat greater availability of homes for sale.”
James Monks, a sales manager with the Riverside regional office of Prudential California Realty, said that he recently had one shabby, bank-owned home in Moreno Valley receive 64 offers in just five days.
“It was not a spectacular property, it was offered in the low $100,000s and it was probably worth $140,000 or $145,000, and it ended up selling for more than $165,000,” he said. “It’s not like it’s a screaming deal, but it’s just folks are willing to overbid.”
Monks said that representatives of investor groups with hundreds of millions in Wall Street backing have been pitching him hard. “Don’t sell to regular people — just sell to us,” Monks said these investors have told him.
Doug Shepherd, president of the Shepherd Realty Group in Riverside, said that he has one potential buyer with solid credit and a good job in the medical industry. She is qualified with a loan to buy a home up to $250,000. She has not been able to find anything, he said.
“How do you stay competitive? How do you get your offer accepted unless it’s 10 or 15 above the asking price, and you have an in with the owner, seller or the agent?” he said. “It is difficult.”