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After Mucking up Housing Market, Investors Flee

Ballooning home prices have made it tough for investors to work out their equations. These investors were everyone from the couple living down the street to giant private equity funds and REITs that, stuffed to gills with unlimited funds from Wall Street, have been buying vacant single-family homes by the thousands. They’ve been chasing their luck in the now teetering buy-to-rent scheme.

Part of that scheme – encouraged by the Fed – was a concerted effort by these players to push up prices by waves of purchases that would ripple through the larger housing market via the multiplier effect. It would reward them with near-instant paper gains. And they’ve succeeded so well in pushing up home prices over the course of two short years that their own business model no longer works.

Another class of investors has also been hit. Flippers, who buy homes in the hopes that with some trimming, painting, and rehabbing, they can resell them for a profit a few months later, must buy low – below market prices! – and sell at least at market rates for their equation to work. But buying low has been getting tough, and now price increases have slowed – and flippers have been curtailing their buying as well [Home-Flipping Collapses in San Francisco, Losses Spread].

The National Association of Realtors (NAR) keeps confirming these trends on a monthly basis, as both “cash sales” – many of which by investors – and “sales to investors” have been dropping, or rather plunging since late 2013.

Every month since late last year, existing home sales have been below their year-ago levels. The culprit, among others, are the same folks who drove up sales starting in late 2011 through mid-2013, and who have now walked away: investors.

The share of sales to investors has plunged to 12%, down from over 20%, and as high as 23%, during the investor spree in 2012 and early 2013. By the looks of it, it’s not over.

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