By Mike Colpitts
Strong demand for lower priced foreclosure homes held by banks (REOs) and the nation’s giant mortgage lenders by purchasers is starting to send values of all other homes higher, according to real estate research firm Clear Capital.
The Truckee, California based data firm said home prices are still losing ground over the last year, but prices showed “relative strength in April with virtually no change over the short term and tapering losses over the longer term.”
“There has been quite a bit of buzz in the housing industry surrounding turning REOs into rentals,” said Clear Capital director of research Alex Villacorta. “Our data suggests early activity from these programs could be starting to take effect, with national REO only home price gains on a price per square foot basis vastly outpacing fair market prices on a national level.”
A trial program of slightly more than 2,400 homes sold by mortgage giant Freddie Mac to a group of investors backed by an investment fund may provide the first sign of stability for the U.S. housing market.
“Should investor interest continue to drive the expansion of REO to-rental programs over the next several months, there could be a significant impact on the market overall in terms of providing a rising floor to home values,” said Villacorta.
However, investors purchasing discounted foreclosure homes are paying mostly cash, with only 5.7% obtaining a mortgage to make their purchases in the month of April, according to the Mortgage Bankers Association. The majority of buyers are pulling cash from other investments to buy real estate, which they see as a tangible investment that should increase in value over the long term.
Clear Capital said the nation’s housing markets lost little ground with quarterly losses of just two-tenths of one-percent on average during the month of April. However, the West and Southern regions of the U.S. are still in negative territory for the year, but showed signs of improvement in April from prior months, reducing their annual losses.