Nearly Half of Foreclosure Buyers Seek Investment Property
LOS ANGELES, Nov. 11 /PRNewswire/ -- Affordable prices and foreclosures are attracting investors to the housing markets today, and the number of consumers interested in investing in real estate has doubled since March 2009, according to the new Move.com Homeownership Survey released today. Low prices and foreclosure bargains have also become the most important reasons motivating buyers today to purchase a home.
According to the Move.com survey, one out of eight (12.1%) homebuyers today plan to purchase a home as an investment property, compared to 5.6 percent seven months ago(1). Of those interested in buying a home for investment, 15.8 percent were men and 8.1 percent were women.
Foreclosure buyers, accounting for 25.3 percent of consumers interested in purchasing a home, are a major source of potential investment activity for today's housing market. Forty-two percent (42%) of potential foreclosure buyers regard their purchases as investments, while 57.6 percent plan to live in the foreclosed home themselves. Foreclosure investors, according to the Move.com survey, intend to convert their foreclosures into rentals (13.2%), fix them up for re-sale (11.3%), or house a family member until the home can be sold at a profit (17.4%). Of the forty-two percent interested in purchasing a foreclosure as an investment, survey respondents ages 35 to 49 (52.6%) were by far the largest demographic.
Expected Profits Gained From Purchase Discounts and Appreciation
The Move.com survey found foreclosure buyers expect to profit from both deeply discounted purchase prices, as well as healthy appreciation rates over five years. Most foreclosure buyers (58.2%) expect to pay 20 percent or less than market price for a foreclosure, while 38.5 percent expect a 25 percent or greater discount. While, 73 percent expect their properties to appreciate ten percent or more in five years, 28 percent expect their purchases to appreciate 20 percent or more during that same investment horizon. According to the Federal Housing Finance Administration's Purchase Index, homes have appreciated an average of 15 percent nationally since 2004(2).
According to the Move.com survey, the most important reasons motivating prospective home buyers and investors to purchase a house include concerns that prices are as low as they will go (23.6%) and desire to take advantage of foreclosure bargains (18.7%). The second most important reasons motivating property purchases include taking advantage of the great selection of homes for sale in their community (21.2%) and concern interest rates will rise (14.2%).
"This latest Homeownership Survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market," said Move, Inc., Chief Revenue Officer, Errol Samuelson. "In today's environment, regardless of whether you're an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years."
First Time HomeBuyers, Shifts in Motivation, and Affordability
Despite today's challenging economy, demand for home ownership remains strong and first time buyers make up a significant segment of all potential buyers. Nearly ten percent (9.8%) of consumers say they plan to buy a home in the next two years, with 5.4 percent planning to purchase in the next 12 months. Of those planning to purchase a home in the near future, nearly half (48.3%) are first time buyers, with women (52.8%) slightly more interested in entering the housing market than men (44.1%).
While affordability and foreclosure bargains have consistently been the primary reasons motivating homebuyers in the past four months, secondary reasons have changed. In June 2009, interest in taking advantage of low interest rates (21.1%) was cited as the second most important reason to buy. Today, buyers are motivated more by the great selection of homes for sale in their community (21.2%) as the leading secondary reason to purchase a home.
The Move.com survey also found that while perceptions related to affordability have improved in four months, most Americans are still unaware of how affordable homes are today. In June 2009, more than three-quarters (76.4%) of Americans said they thought a family earning the national median income of $52,029(3) could afford 50 percent or fewer of the homes for sale in their area. Today only half (50.4%) of all Americans say a median income family can afford 50 percent or fewer of the homes for sale in their neighborhood, a 26 percentage point improvement in just three months. In fact, a median income family today can afford approximately 70 percent of the homes listed for sale on the Move Network of real estate Web sites.(4)
"In the past year, affordability has improved significantly, especially for first time home buyers, and is higher now than at any time the past two decades(5)," said Samuelson. "Even more encouraging is that 34.1% of survey respondents said they expect median income families will be able to afford more than 50 percent of the homes in their neighborhood a year from now. This sentiment is especially true with people ages 18 to 34, the nation's next group of first time homebuyers."
Message to Washington
The October 2009 survey also found that the Federal government's approval rating by consumers on housing issues has slipped slightly since March 2009. By a six-percent margin, Americans said they don't think the government is doing enough to stabilize the housing market (48.2% compared to 42.2%), despite efforts to prevent foreclosures and keep interest rates low. However, while 48.2% of respondents were negative about the government's job to stabilize the housing market, the priorities consumers have for the government related to housing haven't changed in the past year. According to the survey, consumers still want low interest rates (31.4%) and action by the government to help homeowners prevent foreclosures (28.5%), the same two top priorities expressed by survey respondents in March 2009.
The survey found that public participation in the Making Home Affordable programs to prevent foreclosures proved to be much lower than anticipated. In March 2009, several days after the details of the programs were announced, Move's Homeownership Survey found that 17.6 percent said they intended to participate in the Administration's program. Seven months later, only 8.8 percent said they actually did participate.
Fear of Foreclosure Fades
While foreclosure filings reached record levels in the third quarter in 2009, with one in every 136 American homes receiving a foreclosure filing(6), homeowners today are actually less concerned that they or someone they know may be facing foreclosure as compared to seven months ago. In March 2009, 52.5 percent of all survey respondents said they were concerned that they or someone they know may face foreclosure in the next 6 to 12 months. That number dipped slightly to 45.1 percent in October 2009. According to the survey, fear of foreclosure today is greater among women (49.3%), with people earning $50,000 or more annually (43.9%), and with people living in the South (42.6%) and West (55%). The six states today with the highest rate of foreclosures are California, Florida, Arizona, Nevada, Illinois, and Michigan. These six states accounted for 62 percent of the nation's total foreclosure activity in the third quarter of this year.(7)
The Economy, Refinancing and Shifts in Consumer Spending
The company's October 2009, Homeownership Survey found today's economy may be impacting how homeowners that successfully refinanced their mortgage in 2009 (27.6%) are spending their refinancing gains. In June 2009, homeowners that refinanced their mortgages said they used the monthly savings almost equally to fund home remodeling or repairs (12.3%) and to pay living expenses (12.2%). In addition, June 2009 survey respondents said they used 10.7 percent of the monthly savings to fund retirement, 5.5 percent to fund tuition, and 5.3 percent to fund investments. However, in October 2009 homeowners that successfully refinanced their homes said they used the savings to pay down consumer debt (11.8%), to fund living expenses (11.9%), and to pay home remodeling or repairs (9.6%). Use of the remaining monthly savings in October 2009 to fund tuition (3.7%), investments (3.6%) and retirement savings (5.1%) was reduced by almost half as compared to allocations for these same categories in June 2009.
This survey, the fifth in a series of quarterly Homeownership Surveys commissioned by Move, Inc., is based on interviews conducted from October 16 - 18, 2009. A total of approximately 1,004 interviews were completed, with 526 female adults and 476 male adults. The margin of error on weighted data is +/- 3. The survey was conducted by OmniTel, a weekly national telephone omnibus service of GfK Custom Research North America. The raw data are weighted by a custom designed computer program, which automatically develops a weighting factor for each respondent. This procedure employs five variables: age, sex, education, race and geographic region. Each interview is assigned a single weight derived from the relationship between the actual proportion of the population with its specific combination of age, sex, education, race and geographic characteristics and the proportion in our sample that week. Tabular results show both weighted and unweighted bases for these demographic variables.
