It is by now well understood that the US housing market over the past year has not benefited from broad consumer participation, exhibited best by the unprecedented, 13 year low collapse in mortgage applications [11]. And since bond yields which recently "soared" to 3.00% only to drop right back have not resulted in a spike in applicants for home mortgages, it is clear that the problem is far more broad and systemic and has to do more with affordability than any other aspect of the market. And yet one thing that did support the elevated, or as some call them, bubble prices, of US houses, was the bid from institutional investors: those "house flippers" who buy a home with the intent of either renting it out or selling it to a greater fool.
Alas, just like the rental bubble whose bursting we chronicled here just last week [12], so the institutional bubble has just popped, which we know courtesy of RealtyTrac data reporting that institutional investors — defined as entities purchasing at least 10 properties in a calendar year — accounted for 5.2 percent of all U.S. residential property sales in January, down from 7.9 percent in December and down from 8.2 percent in January 2013. This was the biggest one month plunge in history. It gets worse: the January share of institutional investor purchases represented the lowest monthly level since March 2012 — a 22-month low.
[13]
Some other RealtyTrac findings [14]:
Metro areas with big drops in institutional investor share from a year ago included Cape Coral-Fort Myers Fla. (down 70 percent), Memphis, Tenn., (down 64 percent), Tucson, Ariz., (down 59 percent), Tampa, Fla., (down 48 percent), and Jacksonville, Fla., (down 21 percent).
Yet, unwilling to give up on this latest bubble craze, institutional investors are still hoping there is some last minute cash to be made in some remaining markets.
Counter to the national trend, 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share, including Atlanta (up 9 percent), Austin, Texas, (up 162 percent), Denver (up 21 percent), Cincinnati (up 83 percent), Dallas (up 30 percent), and Raleigh, N.C. (up 15 percent).
The rotation from one set of markets to another is shown on the chart below:
[15]
The following quote summarizes the situation best, and it also refutes the entire "harsh weather" excuse that has become so popular in recent months:
“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”
So with retail buyers long out, and cash buyers and institutional investors - which as readers know amount to about 60% of all purchases - on their way out, just what will be the next myth be that will be disseminated to percent the general public from realizing that the artificial housing market "recovery", which was entirely driven by hot money, speculation, and hope of a quick profit? Because with QE also fading, and with it the MBS bid, not to mention the surge in foreclosure exits and the flood of foreclosed properties about to hit the market as we wrote yesterday [16], things for the US housing market are about to get very messy.