Volume 2013 - Number 24
June 20, 2013
Investors Reducing Home-Purchase Activity, Increasing Opportunities for Purchase-Mortgage Originations
Investors have significantly reduced their home-purchase activity in recent months, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. Current homeowners and first-time homebuyers have filled the void and are much more likely to finance a home purchase with a mortgage compared to investors.
Investors accounted for 20.2 percent of home purchases in May, based on the three-month moving average, the third consecutive decline in investor share. Market share for both current homeowners and first-time homebuyers increased in recent months, with current homeowners accounting for 43.8 percent of home purchases in May.
The trends present origination opportunities for lenders as current homeowners and first-time homebuyers are much more reliant on mortgage financing for home purchases than investors. Investors paid with cash in 74.1 percent of their home-purchase transactions in May, while cash purchases accounted for 25.2 percent of transactions involving current homeowners and only 11.0 percent of first-time homebuyers’ transactions.
Home purchase and sale activity is also being prompted by increases in home prices and concerns among potential homebuyers that interest rates are set to increase. However, some potential buyers have had problems qualifying for mortgages due to tight underwriting standards.
The average credit score on FHA purchase mortgages closed in May was 697, according to a report released this week by Ellie Mae. Front-end debt-to-income ratios averaged 28 percent in May. The average credit score on conventional purchase mortgages closed in May was 761 with a 22 percent front-end DTI ratio and an 80 percent LTV ratio.
The shift in homebuyer behavior also relates to servicer activity. Real estate agents report that the availability of real estate owned properties – a major focus for investors – has declined significantly in recent months. “There is a lack of REO properties on the market,” according to a real estate agent in California. “Banks are not releasing them, which is driving up market prices.”
And investors have reduced their purchases of short sales as the processing times lengthen for such transactions. After trending downward for the past three years, time on market for short sales has increased in the past three months.
Short sales took 14.7 weeks to complete in May, based on the three-month moving average, up from 13.0 weeks in February. The timelines were already significantly longer compared with sales of REOs and non-distressed properties, whose time on market has continued to decline in recent months.
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey is based on a national survey of more than 2,000 real estate agents each month and provides up-to-date intelligence on home sales and mortgage usage patterns. For more information, go to www.housingpulse.com.