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Posted by on Dec 13, 2013 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying | 8 comments | Print Print

Investor Activity in 2014

investors2014The Trulia predictions earlier this week included several references to less investor activity in 2014, due to higher prices.  In particular was his #2 point:

2) The Home-Buying Process Gets Less Frenzied. Home buyers who can afford to buy won’t be as frantic as buyers in 2013. That’s because there will be more inventory to choose from, less competition from investors, and somewhat looser mortgage credit in 2014.

Investor activity is less than what the media will have you believe – at least in San Diego. According to this article by the Fed, investors made up less than 4% of total sales in San Diego in 2012.  Flippers came on strong this year, so the 2013 investor count is likely to be higher than last year’s, but probably still under 10% of the overall market.

I don’t think investors are done.

They will only quit when they’ve been burned – and it will probably take a few big losses to run them out of the business.

Instead, I think we will see increased competition for the deals – the standard listings that are priced at the comps or under.  There should be a solid floor to the market.

But investors/flippers will be under increased pressure to pay more than they are comfortable paying – everyone is!

They will try to pass it on to the retail buyer, and bump their list prices even higher.  Because of their confidence from recent successes, they will main contributors to the OPT pool (over-priced turkeys).

It’s already happening - there are flippers sitting on OPTs everywhere, confident that once the holidays are done, the buyers will be back.

However, the market has been extremely active the last couple of months – there hasn’t been much of a holiday dip in buyer interest, there just aren’t many quality homes for sale at decent prices.

Coming off a boisterious 4Q12 and fueled by mortgage rates in the low-to-mid 3% range, the spring selling season went gangbusters this year.

But now that the hyper-frenzy is done, buyers aren’t jumping at everything any more.

The current environment is much more cautious, which is ideal for a standoff.  With (over) confident flippers continuing to push their list prices, and regular sellers tacking on an extra 5% to 10% just to make sure they get all their money, we are ripe for the Big Stall in spring.

P.S. Trulia’s other comment about ‘somewhat looser mortgage credit in 2014′ is suspect too.  We haven’t covered the QM yet, but back-end ratios will be limited to 43% starting January 1st - and they have been as high as 50% this year.

fed investor share

8 Comments

  1. I always take what these national outlets say with a grain of salt. They speak to averages and certainly not a market such as coastal CA. Where they are right is I too beleive it will be the year of the move up buyer in our corner of the world. Not Richard’s 2011 CV buyer but people that have been in their homes for 10+ years. Lots of smart, responsible 40 and 50 somethings out there that bought homes back in the late 90′s and early 2000′s have homes which have doubled and in some cases tripled in value. They are now in their prime earning years. The college funds are flush. The kids are in high school, college or already college grads. Mom and Dad have sacrificed for years for the kids and its their time to treat themselves.

  2. Wow. Really? What exactly do they see in the slew of Dodd Frank regulations going into effect that will equate to “looser mortgage credit”. Every mortgage guy I know was screaming to get it done by the end of the year if at all possible….

  3. Mom and Dad have sacrificed for years for the kids and its their time to treat themselves.

    A terrific feel-good idea and, for my sake, I hope it comes to fruition. As long as they have $250,000 to $500,000 in their checking or savings account, they have it made.

    Oh, it’s invested?

    No problem, just going ahead and liquidate the investments, realize the gains, and we’ll buy the next house first.

    Oh, not the right option?

    No problem, let’s sell the old house, and go rent while we wait 1-25 months for the right house to come up.

    Not a good option either?

    We can make contingent offers all around town, but the only luck we’ll have is with the OPTs nobody else wants. After doing so well for so long, nobody is going to compromise now.

    It is a great idea, it is in the logistics that it gets bogged down.

    I told one couple in the same predicament that if they wanted to treat themselves, they should spend 7-10 days at the Maui Four Seasons while they mull over these options, and call me when they get back with their favorite.

    I didn’t hear back from them.

  4. A big variable with a steadily improving economy will be looser lending standards. With that there will be a bigger buying pool and more demand regardless of interest rates.

  5. Dodd Frank is not exactly simple to figure out, but at least there is a set of rules to follow going forward. The uncertainty going forward should be decreasing whereas it has been increasing to this point.

    “non-qualified” mortgages are not illegal, there are just more hoops to jump through. Not every mortgage has to be QM.

    There is a lot of money looking to find a way into the mortgage market, and the hunt for yield remains strong. I can see lending getting looser going forward.

    Just this week I got a loan solicitation letter from Morgan Stanley of all firms. Seems they have a “special loan program” for owner occupied, investment and commercial properties. The loan is based on one month LIBOR “as low as 2%”. It is structured based on interest only for the first 10 years, fully amortizing after that.

  6. I think trying to put everyone into a box is a folly. We cant begin to understand everyone’s situation and they are all unique. Some will pay capital gains, some dont have much in the way of gains as they are invested in muni bonds, some inherit, some sell companies, some exercise stock options, some have the income to carry both while the sell the old home, lots of the upper tier sellers will accept a contingent offer as evidenced by the hundreds of homes in RSF and that doesn’t even scratch the surface of options. We can talk ourselves out of anything including making money.

  7. But but the spreadsheets says wishing price is the right price. Just because the Assessor is told the purchase was all cash doesn’t mean we actually had the cash.

  8. I think trying to put everyone into a box is a folly.

    We folly alike!

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