Who Are Buying Homes Now?

home equity

In some housing markets, buyers are back, spurred on primarily by the drop in housing prices. That drop has substantially reduced the monthly cost of homeownership, creating conditions where owning a home is less costly than renting one. The greater Phoenix area is down 50% from market highs. Investors are snapping up distressed properties. Absentee buyers accounted for nearly four of every 10 homes sold in April. Investment companies are taking notice as well.

CBI Group, a Canadian real estate fund, is purchasing property in the greater Phoenix area. An initial fund was established to acquire 175 housing units, anticipating that rental income will allow the company to recoup their investment in about five years. More recently, the CBI Group has opened an additional fund to purchase another 160 properties.

Similar housing conditions prevail in California and Florida, where brokers are seeing bidding wars on relatively cheap homes in foreclosure. Distressed properties accounted for about half of all home resales nationwide in March. As prices decline, housing affordability has jumped 10% during the first quarter of 2009 to its highest level since recordkeeping began 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

Lower borrowing costs are also making real estate more attractive. The Federal Reserve has moved aggressively to push down mortgage rates by purchasing long-term securities. This has brought rates on 15-year and 30-year fixed-rate mortgages to historic lows. Existing home sales rose 2.9% in April to a seasonally adjusted annual rate of 4.68 million. On a month-to-month basis, sales were up 11.6% in the Northeast, 3.5% in the West and 1.8% in the South. Sales in the Midwest fell by 1.8%.

Home builders are also seeing an uptick in business. Toll Brothers Inc. recently announced deposits for new homes rose in the fiscal second quarter from a year ago. And the National Association of Home Builders recently stated this confluence of market conditions amounted to “the best home-buying conditions of a lifetime.”

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