Investors snap up foreclosure bargains

WASHINGTON - Home sales are starting to tick up after the worst year in more than a decade. But the momentum is coming from cash-rich investors who are scooping up foreclosed properties at bargain prices, not first-time homebuyers who are critical for a housing recovery.

The number of first-time buyers fell last month to the lowest percentage in nearly two years, while all-cash deals have doubled and now account for one-third of sales.

A record number of foreclosures has forced home prices down in most markets. The median sales price for a home fell last month to its lowest level in nearly nine years, according to the National Association of Realtors.


Lower prices would normally be good for first-time homebuyers. But tighter lending standards have kept many from taking advantage of them. With fewer new buyers shopping, potential repeat buyers are hesitant to put their homes on the market and upgrade.

Cash-only investors are most interested in properties at risk of foreclosure. They can get those at bargain-basement prices.

Sales of previously occupied homes rose slightly in January, to a seasonally adjusted annual rate of 5.36 million, the Realtors group said Wednesday. That's up 2.7 percent, from 5.22 million in December.

Still, the pace remains far below the 6 million homes a year that economists say represents a healthy market. And the number of first-time homebuyers fell to 29 percent of the market, the lowest percentage of the market in nearly two years. A more healthy level of first-time homebuyers is about 40 percent, according to the trade group.

Foreclosures represented 37 percent of sales in January. All-cash transactions accounted for 32 percent of home sales, twice the rate from two years ago, when the trade group began tracking these deals on a monthly basis. In places like Las Vegas and Miami, cash deals represent about half of sales.

In the three states where foreclosures are highest, at-risk homes make up at least two-thirds of all sales. In Florida, 63 percent of sales in January involved homes that were at risk of foreclosure, according to a Campbell/Inside Mortgage Finance survey. In Arizona and Nevada, a combined 72 percent of sales involved homes at risk of foreclosure.

A major barrier for first-time homebuyers is tighter lending standards adopted since the housing bubble burst. These have made mortgage loans tougher to acquire. Banks are also requiring buyers to put down a larger down payment. During the housing boom, buyers could purchase a home with little or no money down.

The median down payment rose to 22 percent last year in at least nine major U.S. cities, according to a survey by Zillow .com, a real-estate data firm. That's up from 4 percent in late 2006, as the housing bubble began to burst. The cities included some of the nation's hardest-hit markets - Las Vegas, Phoenix and Tampa - as well as areas that are rebounding, including San Diego and San Francisco.

by Derek Kravitz Associated Press Feb. 24, 2011 12:00 AM




Investors snap up foreclosure bargains