Investors and Foreclosures

Implications: “Speculators” / investors seem to bear the brunt of criticism when discussing the downturn in residential real estate.  Undeniably, this group contributed to both the rise and fall of residential real estate.  However, the MBA statistics, coupled with BREC’s previous estimates of investor buyers, reflect an equal proportion of 2004 and 2005 resident buyers are being foreclosed upon.  Others appear to be deserving of some of the blame for the current downturn….

Analysis: Although we have no way of knowing with a simple read of the subject article, the authors must intend to evoke some level sarcasm with their title.  Speculators “may have” accelerated the housing downturn?  Sales levels and home prices in 2004 and 2005 jumped with investor activity, and inventory levels drastically increased in late 2005 (followed by ’06 price declines) as investors pushed resale inventories upward practically overnight.  These so-called investors were not solely responsible for the phenomenal growth in the boom years and certainly and not wholly responsible for the downturn, but they have clearly contributed to both.  

The value of the subject article lies in the figures provided by the Mortgage Bankers Association (MBA).  Arizona is among states with the highest percentage of non-owner-occupied foreclosures as a percentage of all loans.  According the article, 22% of foreclosures are likely speculators because the mortgage notes are held by people other than the residents of the homes.  

The subject matter highlighted by the article’s authors is mortgage fraud.  Many of the investors being foreclosed on did not disclose they were investors; in fact, many signed contract addendums, specifically stating they were not investors.  In a quote, Mr. Toll of Toll Brothers, even hints at some surprise.  

Belfiore Real Estate Consulting (BREC) has previously estimated up to 25% of 2004 and 2005 metro area buyers were investors.  Assuming the estimation is accurate, a nearly-equal percentage of resident and non-resident buyers are missing their mortgage payments.  

“Speculators” / investors seem to bear the brunt of criticism when discussing the downturn in residential real estate.  Undeniably, this group contributed to both the rise and fall of residential real estate.  However, the MBA statistics, coupled with BREC’s previous estimates of investor buyers, reflect an equal proportion of 2004 and 2005 resident buyers are being foreclosed upon.  Others appear to be deserving of some of the blame for the current downturn….