Home buyers replace investors, easier mortgages replace all-cash deals

by Broderick Perkins

(9/25/2012) - Raising hopes for home buyers who've been competing with all-cash investors, the use of mortgage financing rose sharply in August, continuing a trend away from all-cash deals from investors and indicating mortgage underwriting is easing.

Unfortunately that hope could be short-lived if another report about what investors are up to pans out.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey reported mortgages were used to finance 68.9 of home purchase transactions in August, up from 67.5 percent in July. FHA-financed transactions rose slightly from 25.5 percent in July to 25.9 in August, but were at 27.3 percent of all home purchase transactions back in January.

The Mortgage Bankers Association predicts the trend will continue for the rest of the year, with 1.5 million residential mortgage originations expected in 2012, up from 1.3 million in 2011, with refinanced mortgages making up 72 percent of the loans in 2012, 68 percent in 2011.

Campbell says, along with low interest rates, the change is due both to eased underwriting from private lenders and investors leaving the market.

According to the approximately 2,500 real estate agents it surveys nationwide each month, mortgage availability has improved over the summer months, especially for homebuyers with less than 20 percent down.

Meanwhile, investor participation in the housing market fell to 21.9 percent of all transactions in July, from 23.5 percent in June and down from peak investor participation back in May of this year, 25.3 percent of all transactions, Campbell reported.

"Reasons for the growth in conventional mortgages include low rates, increased underwriting of high loan-to-value (LTV) mortgages by private mortgage insurers, and a price structure including insurance premiums that is cheaper than the FHA alternative," said Thomas Popik, research director for Campbell.

Clear Capital also recently reported the shift to owner-occupied purchases.

Breaking a 2012 growth cycle, national REO saturation declined over the rolling third quarter to levels not seen since April 2008. Fair market prices also outpaced REO prices over the rolling quarter for the first time since April 2011, signaling the start to a more mature recovery, Clear Capital reported.

"This month, three notable trends shifted: Growth in the fair market segment outpaced the REO segment over the last rolling quarter; through the first half of 2012, REO saturation was on the rise while August saw a drop to the lowest levels since 2008; and non-investor home buyers made up a larger chunk of the sales mix. The spark from the investor community has ignited activity in the owner-occupied sector of the market. In other words, historical market forces are at play," said Dr. Alex Villacorta, Clear Capital's director of research and analytics.

Looking at the trend another way, Campbell's HousingPulse Distressed Property Index (DPI) said the proportion of home purchases involving distressed properties fell to 40.4 percent in August, down from 42.2 percent in July, the lowest level recorded since January of 2010.

Investors: 'We'll be back'

However, savvy investors may be just taking a breather, counting their money and examining future options as prices begin to rise in a low-interest rate market. A new report, "Investors poised to further stimulate residential real estate market," appears to contradict reports that real estate investment buys are drying up.

In the next 12 months, 65 percent of active real estate investors plan to buy as many as or more properties than they did in the past year, according to an ORC International survey commissioned by BiggerPockets.com and Memphis Invest.

That percentage represents 4.5 million investors. That's more than the under 2.5 million or so resale homes on the market each month.

Stay tuned.