Investor Activity Plummets in California

Over one year ago we saw investors flood the market in record numbers – a practice which brought both good and bad elements to the RE community. On one side, these investors played a major role in driving up home prices, and helping spur the recovery which was well received. On the other end, these investors pushed many would-be homeowners out of the market by starting large bidding wars and offering cash up front. Lately though, this practice appears to have come to a halt – an indicator that prices have hit the ceiling – leaving the market open to those who have previously been forced out by investor activity.
BayArea
San Diego based research firm DataQuick has recently reported that purchases have decreased drastically among the biggest buyers of California real estate this year – more than 70% year-over-year for the past four months. In fact, Blackstone group – the largest of investors – has reduced its California purchases by more than 90% since this time last year.

Dave Bragg, head of residential research at Green Street Advisors, commented on the matter saying, “Private capital made a lot of money early, and now they’re starting to pull back. Home prices are up significantly, and houses are definitely less attractive.”

While these increasing prices have made the market less appealing to both investors and homeowners alike, the shift in investor activity will certainly open up more homes for buyers to choose from. Many experts also believe that we will likely see an expansion of homes on the market, offering a better balance between buyers and sellers and ultimately encouraging a healthier market.

Unfortunately, things still aren’t perfect for those seeking to buy a new home.

“In theory, the migration of big-money investors from the Southland should make more room for regular buyers. But it’s not quite working out that way,” said John Husing, a housing consultant from the Inland Empire, where the buy-to-rent sector has been the busiest in the region. Home buyers still face tight credit and a soft job market. And those who have been renting for the last year have already lost out on big gains in home equity.”

While the ultimate impact of investors leaving the market is still unclear, we can all be certain that the competition which many buyers have once faced has now dissipated.

Do you think the reduction in investor activity will benefit buyers, or is affordability still the ultimate factor when it comes to buying the right home? What are your thoughts?

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