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Investors Indulge in Bulk Buying as Home Prices Drop Further

March 2, 2012

in This Week in Real Estate | Tagged , , , , , , , ,

Home Prices Plummet

Just when everyone thought that the worst was over, some dreary news.

Home prices hit their lowest level in December since the advent of the housing crisis, according to the Standard & Poor’s/Case Shiller Index of 20 American cities. Prices fell 1.1 percent when compared to November, and 4 percent when compared to the same period the prior year.

home prices dropping

“In terms of prices, the housing market ended 2011 on a very disappointing note,” said David M. Blitzer, chairman of the index committee at S&P Indices, in a release.

“While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.”

Out of the 20 cities that the Index tracks, 18 posted a drop in prices. Atlanta, Las Vegas, Seattle and Tampa saw new lows in average home prices. All California cities tracked by the index showed a downslide in prices. In Los Angeles prices fell 1.1 percent, in San Diego it was 0.7 percent, while San Francisco saw a 0.8 percent drop. The only two metro areas that showed gains were Miami, where prices were up 0.2 percent, and Phoenix, where prices rose 0.8 percent.

Economists blamed the price fall on unemployment, strict lending practices and  foreclosures, which continue to hit some neighborhoods hard, according to the Los Angeles Times.

“If you are not in a neighborhood where foreclosures are a big problem, it’s very likely that home prices are not dropping,”  Patrick Newport, U.S. economist for IHS Global Insight told the L.A. Times. “They are stabilizing or rising.”

Celia Chen, a housing economist at Moody’s Analytics,  told the paper that prices may continue to be depressing much of this year despite an uptick in home sales and new construction.

“Enough homes are in the foreclosure pipeline to keep house prices falling through much of this year,” Chen said.

Student Loans Could Threaten Housing Market

Forget foreclosures and spiraling home prices. According to a story by, student loans are like a “ticking time bomb on the horizon” for the housing market. As a new generation of young adults struggle to meet their financial obligations on college debt, they would be creating more hurdles for the market.

In the fourth quarter of 2011, student loan debt touched $867 billion, according to the Federal Reserve Bank of New York. That’s a humongous amount, and has very little potential of decreasing any time soon because of the struggling economy. cites a white paper written by the Federal Reserve Board to the Congress which says that the mounting student loan obligations are like a “loaded shotgun to the U.S. economy.”

Young professionals and recent graduates traditionally have made up the segment of first-time buyers who invest in modest size homes. But with their budgets stretched thin, that market segment is taking a hit. Even if they want to buy,  banks may not be willing to lend to customers with excessive student loan debt, the Fed paper said. That would leave many of them opting for the rental market instead. That in turn could take a toll on the first-time buyer market.

Bulk Buying is the Latest Trend

While much of America is lamenting strict financial lending practices and opting to rent rather than buy in these tough economic times, some are treating the housing market like a shopping trip to Costco.

They are buying properties in bulk, stocking up on potential rental units.

According to Reuters, this home buying frenzy is happening in parts of the country that have been hit the worst by foreclosures. Investors there are lapping up homes at record sale prices, hoping to pour some money into repairs before turning these homes over to the hot rental market. Last year, hedge funds and private equity groups such as McKinley Capital Partners started to quietly become landlords by buying up inventory, Reuters said. Main Street investors are now riding the trend.

“They aren’t just buying one rental property,” Oak Park, Illinois realtor® Kyra Pych told the news agency. “This is a frenzy. They are loading up.”

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