Investors put squeeze on prospective homeowners' American dreams
Cash-rich real estate investors are preventing some individuals from achieving their dream of home ownership — as they compete for the dwindling supply of houses in an improving market.
Sellers are attracted to cash offers from investors who usually pay the asking price and can close a deal faster than someone depending on a bank mortgage for financing. That's what happened to Nitch Pursley when he tried to buy a Cape Cod house in Bethel Park.
It was “a diamond in the rough,” said Pursley, who offered more than the $80,000 asking price for “the perfect house” for himself and his fiancee, Summer. “It was the best starter house for us, with a nice backyard, providing us former Ohio residents the open area we wanted.”
But others liked the house, especially an investor who offered cash for the property, which the seller accepted.
“We were ready to buy, having been pre-approved for a mortgage and having enough for a down payment,” said Pursley, 24. “It's difficult for people of my age to come up with $20,000 to $30,000 for a down payment. We have looked at other houses, but none compared with the one in Bethel Park.”
His agent, Melissa Rhoades of Prudential Preferred Realty, said the situation has happened to other buyers who faced competition from investors: “We still lost, because my clients were mortgaging the house.”
Investors bought more than a third of homes purchased in the City of Pittsburgh this year, as of Sept. 15, using them as rentals or “flipping” them — reselling after making necessary repairs, usually at a higher price, according to a recent report from RealStats, a South Side-based real estate information company.
The biggest buyer in Pittsburgh this year was Joe Calloway, whose South Side-based RE360 Inc. invested more than $1 million into the purchase of 38 homes and one outside the city, RealStats said.
Calloway said he buys houses in city neighborhoods such as Knoxville, Allentown, South Side Slopes and Mt. Washington and turns them into rentals. After a few years, he sells the home to the tenant or places it on the market. He has a staff of five to manage the purchases and his own construction company, with 20 employees.
Another top investment buyer was EKO Development LLC, headed by Emeka Onwugbenu, who acquired 20 properties, mostly in Lawrenceville and Beltzhoover. Most of the houses, he said, have been condemned and were unoccupied. Instead of repairing them and turning them into rentals, he finds buyers who agree to work with him on repairs needed to make the houses livable.
“They worked with my engineers and designers in turning these properties into good houses which they purchased,” Onwugbenu said.
Of 3,047 houses sold in the city during that period, investors acquired 36.5 percent, or 1,111, said Dan Murrer, RealStats' vice president.
“We determined investors by their address, which is different from the purchased property,” he said.
Nationally, investors accounted for 14 percent of sales in September, up from 9 percent in August and 9 percent in September 2012, according to RealtyTrac, a national real estate information company in Irvine, Calif. September produced the highest percentage of investor purchases of any month since RealtyTrac began tracking in January 2011.
“The housing market continues to skew in favor of investors, particularly deep-pocketed institutional investors, and other buyers paying with cash,” said Daren Blomquist, vice president at RealtyTrac.
Though institutional investors are pulling back purchases in many higher-priced markets, such as San Francisco, Washington, New York or Seattle, he said, “they are continuing to ramp up purchases in markets where median prices are still below $200,000.”
Local and national investors like the Pittsburgh housing market because the median price is $137,000 compared with $189,000 nationally, experts say.
Large investment firms have spent billions of dollars in the past year buying homes in some of the nation's most depressed markets, and the resulting price gains have been so big that ordinary buyers are feeling squeezed out, according to Suzanne Mistretta, an analyst at Fitch Ratings.
“The growth is being propelled by institutional money,” she said. “The question is how much the change in prices really reflects market demand, rather than one-off market shifts that may not be around in a couple of years.”
All-cash purchases nationwide represented 49 percent of residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012, RealtyTrac said.
Shanna Chotiner, manager of Prudential Preferred Realty's city office, said investors have bought apartments in Greenfield and single-family homes in Oakland to rent to college students. Some properties can provide an investor with monthly rental income of up to $3,000, she said.
Vera Purcell of Howard Hanna Real Estate Services works with Geoff Strauch of GKI Development in the South Hills, who buys, fixes and sells houses.
“Flipping homes is my profession,” said Strauch, who has no rental units and gets financing from local investors.
Recently, he listed a Mt. Lebanon house for $749,000,. He bought it for about $300,000 and wouldn't say how much he put into repairs and upgrades.
Many first-time buyers have turned to Federal Housing Administration mortgage programs, which offer loans with a 3.5 percent down payment. Yet that process, like a bank mortgage, can take months, experts say.
Sam Spatter is a Trib Total Media staff writer. Reach him at 412-320-7843 or firstname.lastname@example.org.