Today the percentage of buyers from out of state or buyers who intend to rent their property is 35.4%, slightly higher but very similar to the 33.6% reported in 2005. The volume numbers of course are much lower, 8657 monthly sales today compared to 17,016 in March 2005. So now the question, if I thought investors and out of state buyers were a concern in 2005, why wouldn’t slightly higher percentages be a similar concern in 2010? There are some big differences, let me get started.
The volume of investors is half of what it was in 2005. Home prices are 50% below their 2006 peak. The investor today is looking at income and cost models in addition to comparable sales when determining values, both supply and demand are charted and referenced. The evaluation models used today are far more sophisticated as is the data being plugged into these models. The home builders are practically out of play or at the very least sitting patiently on the sidelines; in 2004, 2005 and 2006 we had 100,000 new homes built.
Today, more buyers are coming from the Midwest and Snow Belt as opposed to California, purchasing from a totally different perspective as to the value of a home and what a house should cost, and, they’re buying with cash. 58.4% of all investors and out of state buyers are playing with their own money, real money.
Buyers who buy with cash have 100% equity, and 100% equity means options. Cash buyers don’t get foreclosed and can wait longer for the market to recover. Current inventories of rental houses are available in limited supply. We’re seeing a game of “musical houses”, homeowners are leaving their foreclosed home and renting a similar home with lower monthly payments, but still affording rental income sufficient to provide a suitable rate of return for the investor.
One final caveat for the cash buyer when he does choose to sell, they will not have to rely on conventional financing; they will have the option of a seller carry back or agreement for sale.
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