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Saturday, August 1, 2009

Are low-income buyers being hurt by investors?

I’ve been working with a number of potential buyers who might be classified as low-income buyers. They are trying to buy homes that are under $50,000, because that’s what they can afford. Many, if not most,of the houses that fall into that price range are bank-owned these days. What’s happening with these houses is indicative of the market but it’s a shame, too. When I finally find a home that is in the price range that my low-income clients can afford AND which is habitable (sometimes not easy to find done in that price range), we keep getting beat out by “investors.”

Now, don’t misunderstand me on this. I have nothing against investors and they are making a major contribution towards getting the flood of foreclosed homes off the market. I’m working with a couple of investment groups that are out buying up houses 5-10-20 at a time, so I can’t complaint too loudly about investors buying houses. What is a shame is that they are tending towards buying up the same houses that the truly low-income families are looking for as a primary residence. To be sure, the investors are in most cases flipping the houses, but usually after they have put some improvements in and have raised the price, many times pricing them back out of reach for the low-income buyers.

One of the things that I’ve noticed is the preference for cash offers, often stated right in the Multi-list advertising. This is true even for Fannie Mae and Freddie Mac houses, at least in my area. I think HUD still states some preference for buyer occupancy for their houses, but lots of them go to investors, too. The other thing that I run into is that investors will many times take the house without an inspection - they expect things to be bad and put that in their plans. Buyers who intend to occupy are always encouraged to get inspections and sometimes will discover things that will impact what they will bid (missing furnaces and plumbing come to mind for some of the houses that I've seen) and the sellers don't like that, either. Buyers who will occupy the house are also likely to need to get a mortgage of some sort, generally an FHA or USDA-backed mortgage, which many of these sellers consider to be another pain in the rear. So that further puts the low-income buyer at a disadvantage with the selling banks.

I guess all of this isn’t necessarily a bad thing, since the investor groups often pour money into these homes to bring them back from the abused states that they are often in; however, a new owner who was going to live there would likely do the same. Many of the investors are turning these homes into rental units until the market comes back and home values go up again. There’s nothing wrong with that either, but it does potentially make for less stable neighborhoods than places where the homes are owner-occupied.

As a Realtor it is frustrating to try to help these low-income people find a new home only to beaten out time after time. I don’t suppose that there is a whole lot that can be done about this, but one would think that a minor change in Federal “guidance” for the banks and Fannie and Freddie that might gently suggest giving preference to bids from buyers who plan to live in the home. FHA has that built in to its purchase agreement documents, but something may need to be done on the sell side, too, in order to encourage more sales to actual occupants. That's just my 2-cents worth.

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