First-time homebuyers, it is claimed, are finding their opportunity to purchase a home thwarted by all-cash investors. In July 2011, cash purchases made up 28% of homes sales in Southern California and 26% in the Bay Area.

These all-cash purchases, made by investors and speculators who have no intention of occupying the properties themselves, have become an on-going dominant force in the multiple listing service (MLS) resell market. The influence of speculators is particularly felt in the low-tier market, as speculators purchase these properties to remarket them and profit on the flip, giving first time buyers the time needed to obtain financing.

However, not all property is purchased for a quick flip. Buy-to-let investors purchase homes with the intention of renting them out for the long-term for a constant revenue stream. [For more information on current home sales numbers, see the August 2011 first tuesday article, July 2011 home sales volume.]

Many investors add value to a property by repairing and rehabilitating it before selling.  While their activity is beneficial to the marketplace, homebuyers intent on building sweat equity by doing the repairs themselves are pushed out of the market for a shelter, a home’s primary purpose.

first tuesday take: By now, this is really an old story.  Speculators sandwich themselves into real estate transactions as flippers between real estate owned (REO) lenders and homebuyers. [For more information on the effects of speculators, see the August 2009 first tuesday article, Once again, speculators are a plague on the market.]

The new story: a change has taken place in the MLS market.  Homebuyers are simply giving up their pursuit of homeownership for many reasons unrelated to competition from cash-buyers.  The void their departure leaves cripples speculators, but opens up the market, allowing the buy-to-let investor interested in single family residence (SFR) rentals to occupy the field by default.

All this rental investor activity is a sign of the economic restructuring of real estate we witness as California’s homeownership ratio shifts from 60% to 50%, happening all within less than a decade.

Lenders are the sole losers, both on their REO sale and the mortgage-less cash purchase.  This is all part of the new real estate paradigm.  For brokers and agents, it’s just another sale, but this time coupled with property management.

Re: “Home buyers find themselves aced out by investors” from Mercury News