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2011-04-25 19:27:07
Cash-Wielding Investors Snatch Up Homes

Investors lifted U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But purchases made by first-time homebuyers fell, a troubling sign for the weak housing market.

Deals paid for entirely in cash accounted for 35 percent of all resold homes. That’s the biggest percentage since it has been tracking all-cash sales.  Foreclosures or short sales — when the lender agrees to accept less than what is owed on the mortgage — rose to make up 40 percent of all purchases.  Sales of previously occupied homes rose in March to a seasonally adjusted annual rate of 5.1 million, far below the 6 million homes a year that economists say represents a healthy market, the National Association of Realtors said last Wednesday.

Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures. The trade group’s data takes into account only individual investors. It does not include homes sold in bulk at auction or on courthouse steps. Many of the foreclosure sales probably are being picked up en masse by private equity firms.

Another sign of investor activity is that sales of homes priced under $100,000 have risen 10 percent from a year ago. In that same period, sales of mid-priced homes, from $100,000 to $500,000, have fallen more than 14 percent.

Fewer first-time homebuyers are entering the market. Sales among these buyers, who typically set down roots and raise families, fell to 33 percent in March. The trade group and economists say a healthier makeup is40 percent.

The median sales price rose slightly in March, to $159,600, but it is still down 5.9 percent from a year ago. Foreclosures are dragging down home prices. A record 1 million homes were lost to foreclosure last year and foreclosure tracker RealtyTrac Inc. said it expects 1.2 million more will be lost this year. Homes at risk of foreclosure usually sell at 20 percent discounts.

Joshua Shapiro, chief U.S. economist with MFR Inc., said that “part of the market-clearing process is that distressed properties must be sold, so the fact that this is occurring is good.”

Many would-be buyers are holding off, worried that home prices haven’t bottomed out. Others are having trouble getting mortgages because banks have tightened lending requirements. The average credit score for Freddie Mac and Fannie Mae-backed mortgages is 760, up from 720 in 2007.

A major obstacle to a housing recovery is the glut of unsold homes. There were 3.55 million unsold homes on the market in March. It would take 8.4 months to clear them at today’s sales pace. Analysts say a healthy supply can be cleared in six months.

The situation is much worse when taking into account the “shadow inventory” of homes, economists say. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.

“It is unlikely that home prices can recover on a sustained basis until the inventory-to-sales balance improves further and the number of distressed properties is significantly reduced,” said Steven A. Wood, chief economist at Insight Economics.

The Associated Press

First published Apr 20 2011 08:54PM and Updated Apr 20, 2011 09:35PM

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