Investors slow home purchases as market rebounds! With the property market in Florida strengthening, investors are scaling back on purchases as house prices rise, and doubts creep in.
Reports released in late December 2013 reveal that home sales dropped markedly by 10% over the same period from a year ago. As the property market in the Tampa Bay Area continues to improve, so large-scale investments in home purchases have slowed to a trickle. The continued exit of short-sellers and cash buyers has put the brakes on home sales.
What was viewed as easy pickings after the housing market bubble burst, is less attractive to investors across Florida. Various figures have been released showing a steady decline in the number of single family houses that have been sold. When viewed in perspective, the median price of homes in November 2013 was some 8% higher than the same period in 2012.
While investors may be shifting their funds elsewhere, homeowners have regained equity in net assets, and can now avoid short sales. As a result of the recovery, significant drops in cash sales have been reported. Data from real estate reports reveals that approximately 30% of homes in the Tampa Bay area are listed as underwater - significantly less than the 45% in 2012.
Overall, town home sales and condominium sales dropped by 7% between November 2012 and November 2013. The situation has been compounded by the increase in mortgage rates to 4.5% – up one percentage point during the year. Buyers are reluctant to put all their eggs into one basket when purchasing new homes as sellers are trying to push up the prices as much as possible.
Buy & Rent Preferred to Buy & Flip
Hedge funds with lots of excess cash, in addition to a large number of private equity companies started scooping up single-family homes and scores of foreclosed properties during the housing market crash. As opposed to purchasing properties, renovating them and selling them, many investors have opted to rent them instead.
This has led to the growth of multiple subsidiary industries including real estate agents, management companies and renovation services. Most of the big investment corporations hail from California and New York, and combined they own thousands of homes in Tampa Bay. As the housing market continues to claw its way out of the rut, so the appeal of purchasing these properties diminishes.
The business model of of renting out purchased properties is now being viewed with scepticism as the recovery takes root. Investors are loath to overpay at auctions as they are scared about how quickly the prices are rising, and conversely about what can happen if prices begin to drop again.
The stock markets are reacting to these investments and these companies with diminished enthusiasm. Stock prices remain depressed, and growth prospects for many of these companies are limited. Several hedge funds have even begun divesting from their recent property acquisitions, fearing they are an untenable investment for long-term purposes. But for now the majority of investors are sticking to their guns.
CFDs on Stocks of Investment Companies Purchasing Tampa Bay Properties
A parallel market that is proving to be highly lucrative for investors is that of contracts for difference (CFDs) on the investment corporations that are purchasing properties throughout the Tampa Bay region. The way a CFD works is relatively simple: this tradable instrument mimics the movement of the underlying assets. Profits and losses are possible, depending on the direction of movement of the underlying asset in relation to the investor’s position. With a CFD, no ownership of the asset ever takes place.
The business agreement is between the broker and the client. If an investment brokerage company decides to purchase Tampa Bay homes, CFD brokers can enter into trades with those companies to generate profits. Since the margin levels are really low compared to a traditional broker, CFDs are increasingly being viewed as a cost-effective way to directly get involved in the Tampa Bay property markets. CFD investors have higher leverage, no shorting rules or borrowing stock (since no ownership takes place), no fees and professional execution of trades, and a large variety of tradable options.