Real Estate Investors Are Pulling Back. Should Homebuyers Do the Same?

Photo (cc) by SchuminWeb

The gold rush is nearly over. Real estate investors rescued housing from the recession by spending billions of dollars on cheap foreclosed homes and turning them into rentals. And now they’re pulling back.

A third of the homes for sale in 2009 were foreclosures. One in every four homebuyers was an investor then, according to the National Association of Realtors.

This September, with home prices up and the backlog of bargains shrunk nearly to nothing, investors were less than a fifth of buyers. Making a profit is getting harder.

“Buying investment homes has gone from a no-brainer to needing to think about it,” Walt Molony, NAR spokesman, told Money Talks News.

Investors’ new wariness reveals how the real estate market has changed. What’s it mean for the rest of us? If investors are wary about buying real estate, should homebuyers pull back, too?

Investors vs. homeowners

Higher prices are making investors conservative. CNBC says:

Prices are up more than 12 percent from a year ago, according to several reports, and the average rate on the 30-year fixed is a full percentage point higher than it was last spring. It is now far harder for the average U.S. household to afford a home.

In the West, hard hit by foreclosures and a magnet for investors, prices are up about 20 percent this year, says CNBC. Still, they’re not yet what they were at the top of the housing boom.

But investors are different from the rest of us. They buy homes for profit. Buyers in search of a home are looking for something else: shelter. And other things, like status, access to good schools, family stability and memories.

Your home is not an investment

That means homes are a consumer item for most of us. Maybe not exactly like a new car, but the point is, we buy homes for the experience — because they make us happy, not because they’re likely to make us richer.

You hear a lot about homes as investments. And you do hope yours will eventually sell for more than you paid for it. But, as the housing crash proved, there’s no guarantee that will happen. Given all you have to pour into owning a home — taxes, insurance, repairs, maintenance and upgrades — a net profit can be hard to achieve in the best of times.

That’s not to say you don’t have to be super smart about where and what you buy, how you buy it and how you pay for it. But, face it: Most of us aren’t investors. We’re real estate consumers and lovers. Big difference.

The question, then, is not whether you’ll make a killing from buying a home but whether, if you want one, you can afford it.

What’s an affordable home?

Affordability depends on what you earn and also, just as importantly, on where you live.

Several companies watch what’s happening to affordability around the U.S. To identify “affordable” cities, they see whether a family earning the median income in a town earns enough to put 20 percent down and qualify for a mortgage on a median-priced home there.

Jed Kolko, chief economist at Trulia, writes:

Nationally, home prices still look a bit below their long-term average, and mortgage rates are far below their historical norms – which means that buying a home is still cheaper today than during the housing bubble. But this national average hides enormous differences in what the middle class can afford in each local market.

Trulia’s study of “Most Affordable Housing Markets for the Middle Class” (scroll down the page for the list) found the 10 most affordable markets in smaller cities, mostly in the Midwest.

Trulia’s top three towns for affordability (Akron, Dayton and Toledo) are in Ohio. No. 10 is Birmingham, Ala. The least affordable markets for middle-class homeowners are in California (led by San Francisco,) the New York City area, Honolulu and Boston.

Interest.com takes a different approach, grading 25 large American cities. In 2012, Atlanta, Detroit and Minneapolis all got A’s. This year, no A’s were given, a sign of declining affordability across the country.

Calculate what works

What if you don’t live in one of the affordable cities, and you’re not able to relocate?

Wherever you live, you’ll gain a rough idea of what’s affordable for you with this rule of thumb: Your monthly housing expenses should be no more than 28 percent of your gross monthly income. Your total monthly debt payments (including housing expenses) should be no more than 36 percent of your gross monthly income. Wells Fargo tells how to make the calculations.

Also, you can get a general idea using an online calculator. Here’s one from Zillow.

Are you willing to move out of town to afford a home? Tell us about it in the comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons Not to Move When You Retire
7 Reasons Not to Move When You Retire

Sunny skies and warm breezes sound great. But in reality, you might be better off retiring closer to home.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

8 Things I Always Buy at Target
8 Things I Always Buy at Target

I grew up shopping at the original Target store and am a lifelong fan. Here are my favorite purchases.

Should You Hire a Service to Negotiate Your Cable and Other Bills?
Should You Hire a Service to Negotiate Your Cable and Other Bills?

Services like BillCutterz and BillFixers will negotiate your cable, internet, phone and other monthly bills in exchange for a share of the savings. I tried it: Here’s what happened.

2 Costly Rewards Credit Card Mistakes — and How to Fix Them
2 Costly Rewards Credit Card Mistakes — and How to Fix Them

If you commit either of these credit card sins, you are likely losing money every time you use a card. Here’s how to easily right this wrong.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things You Should Never Do With Bleach
10 Things You Should Never Do With Bleach

Does the pandemic have you reaching for bleach more than ever before? Learn the ins and outs of using this powerful disinfectant.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.