Recent data from Keefe, Bruyette & Woods suggests that annual growth in investor and distressed purchases is now less than the overall market.
Institutional investors notably slowed their pace of purchases in an attempt to focus on ramping up occupancy rates on rental units. Because of this, many are left wondering about the potential impact of a rise in rates and a moderation in investor demand.
According to a report from KBW, a review of annual comparisons shows a roughly 25-30% correlation between overall mortgage volumes and mortgage rates. However, this includes purchase and refinance originations. The report noted that the impact of rising rates on purchase volumes is prior to the impact of home price appreciation.
Non-investor re-sales, which are up 25% year-to-date, compare to investor re-sales, which are up only 5% and 12% for the market. Cash purchases have risen 18%, while first-time purchases are notably down 2%.
“We believe that while investors have been a key factor in catalyzing the recovery, other factors such as strong re-sales, low inventory, and declining delinquencies — driven by economic improvement, loan modifications, and a strengthening housing market—have likely played a more significant role,” wrote KBW.
While it's expected that the number of distressed properties may pick up a bit in the months ahead, it's going to be more difficult for investors to to pick out the cheap homes they were able to even six months ago. "We will definitely see foreclosures tick up as work through these backlogs," said a market analyst. "However, the easy stuff is done."
"The opportunities aren't there in terms of the REO channel," he added. The analyst noted that he doesn't expect to see institutional investors taking down big blocks of properties the way they have been the past 12-18 months. "The savvy investors are really focused on non-performing loans," he said.
