Bay Area residential real estate investors are struggling to find deals among a shrinking supply of foreclosures and rising prices for lower-end homes, according to real estate agents and investors on the front lines of the bidding wars.
Their troubles are part of a trend that has seen increasing numbers of people looking for a home, and bidding on a still small inventory of houses. That's caused prices to rise beyond the reach of many small investors.
"If it's livable, they can pay more than I can," said Glenn Polf of Diversified Ventures in San Ramon.
Polf has been buying and selling seven to 10 houses a year in the East Bay for about seven years, but lately has been outbid.
"It's hard for guys
like myself to find a property that doesn't get multiple offers at this point," Polf said. "All of a sudden that price you thought was $500,000 is $550,000. The market is improving probably faster than people realize."
In Contra Costa County, sales of homes for less than $300,000 have dropped 7 percent over the past year, while sales for more than $500,000 increased 37 percent, according to DataQuick, a real estate information company. The number of sales for $500,000 or less in Santa Clara County dropped nearly 8 percent over the year, while homes that sold for more than $500,000 were up 13 percent, according to DataQuick.
Although investors have been a major factor in the market during the housing crunch, sales to absentee buyers -- typically investors -- have dropped in the East and South Bay over the past three months, DataQuick said. The percentage point drops are "not huge, but it's trending down," said DataQuick's Andrew LePage.
And about half as many foreclosed homes were auctioned off by banks at courthouse steps in July as there were at the beginning of the year in the East Bay and South Bay, according to ForeclosureRadar, a foreclosure tracking service.
"The REO (bank-owned home or foreclosure) boom is pretty much drying up," said Howard Bloom with Intero Real Estate Services in Los Altos.
Bloom said he hasn't had a new foreclosure from Bank of America in four months.
The past two or three months have been a "turning point, said Barbara Lymberis, president of the Santa Clara County Association of Realtors. She said she's seen "an increase in the number of people buying houses to actually live in them," and fewer investors.
"Investors are smart people. They'll hop into the market when they see an opportunity, and when they see the market turning, they'll hop out very quickly," she said.
Some investors are sitting on the sidelines and others are upping their bids and settling for lower returns on their investments. Others are buying out of state.
"We're seeing investors spending more at courthouse steps than ever before," said Michelle Lenahan of ForeclosureRadar.
Thomas K. Wilson of Wilson Investment Properties in Saratoga, said he's mostly losing out to other investors willing to pay more.
"My opinion is a lot of investors are buying at lower margins than they should and are going to end up breaking even or losing money. The average person on the street assumes that foreclosures are flowing out and investors are making a killing. They have no clue," Wilson said.
Real estate agent Joe Reichert of Keller Williams Realty in Danville says he's discouraging investor clients from looking for deals "because it's a waste of time, unless they are willing to pay at a premium. Usually investors want to buy at below current market value."
Richard Smith, a "buy and hold' investor who has switched to lending to other investors, said his clients are paying prices they would have passed up a year ago.
Another issue: Fannie Mae, Freddie Mac and FHA have exclusive "first look" periods during which it won't take offers from investors, which is a growing issue now that more people are buying foreclosures to live in them. The Federal Housing Administration has waiting periods of five days to a month for investor purchases of foreclosed properties. Fannie Mae only accepts offers from "owner occupants" for the first 15 days.
"With the federal government owning over 50 percent of all loans there is a larger then ever category of foreclosures that are preferred to be sold to owner occupants," said Bryce Ellsworth, broker at Windermere Ellsworth and Associates in Brentwood.
San Jose Mercury News