Investor was a bad word back in the boom when flippers helped pump up the demand for new homes. Back then, the downside to investors was their short-term horizon and their propensity to buy the cheapest homes available. Even today, many argue that a home purchased by an investor is merely shadow inventory waiting to reenter the market at some point, and therefore not desirable. But the investor share (which includes homes whose buyers do not live there full time, such as second and vacation homes) of all purchases was higher in 2011 than in 2005, and has served to clear much of the oversupply of existing housing. In 2011, 40 percent of all bank sales of foreclosed homes, 28 percent of resales, and 13 percent of new-home sales were to such investors. Just think how bad the year would have been without this activity.
New homes have not been as appealing to investors lately. The investor share of new-home closings is much lower than for REO sales and resales, and the share is lower in 2011 than it was in 2005. Which markets proved to be most attractive to investors wishing to buy new homes in 2011? Generally, markets where investment activity is high for all home-sale types, markets that suffered significant distress (Michigan), offered attractive second-home destinations (Hawaii and Florida), or large urban markets with plenty of condominiums at relatively low prices (New York).
Investors preferred existing homes. Investment activity was on the rise in 2011 for all sale types except new homes.
New-Home Markets Dependent on Investors
Of the largest 100 MSAs in the country, 10 markets counted at least one-third of their new-home closings in 2011 as purchased by investors (data through September 2011).
|Market||% of New Homes Bought by Investors|
|Grand Rapids-Wyoming, MI||79%|
|Cape Coral-Fort Myers, FL||43%|
|Myrtle Beach-North Myrtle Beach-Conway, SC||42%|
|Naples-Marco Island, FL||38%|
|New York-Northern New Jersey-Long Island, NY-NJ-PA||38%|
The list below shows the country's top 10 builders with the largest proportion of investor buyers. The companies, all production builders with at least 150 closings as of September 2011, had shares of investor purchases ranging from 16% to 36% of total sales.
|Top Builders by Investor Share||Share|
|Castle & Cooke||36%|
|The Related Group||35%|
|Villages of Lake Sumter||31%|
|William Lyon Homes||17%|
|Dan Ryan Builders||16%|
|McBride & Son||16%|