What attracts investors these days is very different from what drew them during the bubble years. They are not really enticed by appreciation potential and leverage. Investors are lured mainly by low prices and positive cash flows.
Many of them are also searching for an alternative to the ridiculously low rates they now receive from money market funds, US Treasury securities or bank CDs. One knowledgeable Phoenix broker explained that his investor-clients are often 50 and older who have been pulled into residential investing because of the plunge in interest rates they’ve had to endure. Quite a few have liquid assets over $1 million and are looking for a better return.
Metros that experienced the greatest price bubbles and subsequent collapse have seen hordes of investors leap into their housing markets -- especially Las Vegas, Phoenix, several Florida cities, and cities in the California Inland Empire. These investors are fairly confident that prices are nearing a bottom and that the risks of major declines are minimal.
Note that this table shows the 10 large counties with the highest total percentage of first liens which were either seriously delinquent or had been placed into default. Keep in mind that these are properties which had not yet been foreclosed and repossessed. We know from historical cure rates (discussed in previous Minyanville articles of mine) that roughly 98% of these properties will eventually be forced onto the market as either foreclosures or short sales.
It is also important to know that CoreLogic’s enormous database of nearly 42 million loans does not include the entire universe of first liens. I was informed by their key database person that they do not extrapolate from their database to estimate the total number of loans or distressed properties. Thus the total number of seriously delinquent and defaulted first liens in these 10 counties is somewhat higher.
Three of these counties contain the major bubble metros of Las Vegas, Miami, and Phoenix. This so-called “shadow inventory” will be thrown onto the market in the not-too-distant future and will clearly add to the glut of MLS listings.
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