The housing market is continuing to find a healthy balance from its collapse in 2008, and as a result, investors are starting to back away.
In the time following the downturn, housing became cheap, but most Americans didn't have the money to purchase. But investors did. As a result, investor home sales jumped. However, as real estate continues to recover and find normalcy, traditional sales will become the norm and investors will disappear from the market.
According to a recent RealtyTrac report, that's just what is happening as institutional investor - entities that are purchasing more than 10 properties in a year - home sales hit a 22-month low. The data showed that investors only accounted for 5.2 percent of the total home sales in January, down from 7.9 percent a month before and 8.2 percent a year ago.
"Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening," said Daren Blomquist, vice president of RealtyTrac. "It's unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago."
The report also indicated that short sales and foreclosure-related sales combined to account for 17.5 percent of residential sales in January, up from 14.9 percent in December and down from 18.7 percent on a year-over-year comparison.
"The Denver metro area did not experience the typical winter slowdown that many markets across the country experienced and we continue to be very busy," said Chad Ochsner, owner of RE/MAX Alliance in Denver, Colo. "Our January year-over-year sales counts are up about 7 percent, which is really encouraging. I think it has a lot to do with improved consumer confidence and low interest rates."
Traditional sales on the rise
While investors are finally exiting the housing market, conventional sales are increasing. A separate report from Commerce Department showed that home sales increased 9.6 percent in January, marking their highest level in more than five years. The sales translated to a seasonally adjusted annualized rate of 468,000, accounting for the highest levels since July 2008.
"I'm hopeful the recovery in home sales will get back on track in the next couple of months," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told Bloomberg. "If we continue to get solid employment growth, which was the trend last year, chances are you'll see home sales continue their uptrend."
While investors are not purchasing properties as much in 2014, many will decide to cash in on their portfolios. As demand continues to be high for housing, investors will be in a good position to sell the properties they have acquired since the downturn. This will be a welcome sign for homebuyers heading into the spring and summer purchasing season, as low levels of inventory have been one of the greatest challenges for the overall market.
Homebuyers encouraged to have inspections
As traditional home sales are likely to jump in 2014, buyers will want to make sure they are thorough when assessing their potential dream home. The best way to learn everything about a property is to have it looked at by a reputable home inspection company.
A good home inspection can give any homebuyer the confidence they need to make a purchase in 2014, as well as clue them in on any issues with the property. This information is invaluable in making an informed decision.