Residential estate market shifting into fewer hands

The National Association of Realtors reported in a news release last week that investment and vacation home sales are soaring as normal home sales are lagging.  Investment homes are single family homes bought as rentals, not to live in.

The association just completed a survey and the results are amazing:

“…investment-home sales surged an extraordinary 64.5 percent to 1.23 million last year from 749,000 in 2010. Vacation-home sales rose 7.0 percent to 502,000 in 2011 from 469,000 in 2010. Owner-occupied purchases fell 15.5 percent to 2.78 million.”

Now, take the following comments with a grain of salt, given that Dr. Housing Bubble and Mish have had scathing comments about the association (get links in IFO’s blog roll). However,

NAR Chief Economist Lawrence Yun said investors with cash took advantage of market conditions in 2011. “During the past year investors have been swooping into the market to take advantage of bargain home prices,” he said. “Rising rental income easily beat cash sitting in banks as an added inducement. In addition, 41 percent of investment buyers purchased more than one property.”

What this tells us is that poor people are moving out of homes they can’t afford and back into rentals, while people with free cash are buying those devalued places. Unless said poor people lost their jobs, or suddenly had big medical issues (bills and/or illness), they shouldn’t have gotten a mortgage in the first place.

Rule of thumb: You don’t own a house unless you have paid off the mortgage. Until then, the bank owns it!

Rule of thumb #2: If you do get a mortgage, get a 15-year one with as huge a down payment as you can manage. And finally, the mortgage should be no more than 2.5 times your annual take-home pay.


About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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