Can Traditional Buyers Save the Recovery? | Bedford Real Estate

The recovery is at a tipping point because traditional buyers are not making up for the decline in sales to investors, who cannot find enough houses to buy profitably.  Cash buyers competing for distressed and low-tier inventory who helped to jump start the overall recovery now are fading from the market.  They have fallen to just 16.8% of all sales, suggesting the shortage of lower priced inventory they seek is the catalyst for stalling gains.

These segments’ rates of growth will likely continue to fall in line with each other as investor engagement dwindles — a result of fewer distressed sale opportunities. As this occurs, markets will be more reliant on performing-only sale demand and price growth, according to the latest market report from Clear Capital.

Moderation continues for the 11th consecutive month. National home price gains fell to 6.7% year-over-year and 1.0% quarter-over-quarter. Meanwhile Distressed Saturation fell to just 16.8% suggesting the shortage of lower priced inventory is the catalyst for stalling gains. National trends were echoed at the regional level, with the West seeing the strongest moderation across the country. In fact, for the first time since the start of the recovery three years ago, the West’s yearly rates of growth fell below 10.0%, a sure sign of more moderation to come.

Improvements in the national economic landscape have not instilled confidence in traditional home buyers (first-time, move-up, second home owners). The general lack of demand in the performing-only segment, coupled with a dwindling supply of distressed inventory, leaves the future of home prices squarely in the hands of traditional home buyers, who have yet to show any signs of re-engaging. Performing-only sales are not yet strong enough to support recovery-sized market growth without distressed sales. It’s been a steady descent for national yearly rates of growth. They have dropped five percentage points from a high of 11.7% in December 2013.

This is due in part to the market’s natural normalization as the correction to the correction subsides and distressed sale inventory dries up. While this is healthy for markets overall, the weakness of price growth in the performing-only segment is further cause for concern. Excluding distressed sales, performing-only national home price growth over the last year was just 4.4%, down from a recovery high of 7.2%. Even more concerning is the performing-only segment’s drop in quarterly growth to 0.6%, nearly cut in half over the last rolling quarter which saw quarterly rates of growth at 1.1%.

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http://www.realestateeconomywatch.com/2014/12/can-traditional-buyers-save-the-recovery/