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IRVINE, CA-The residential real estate market is being harmed by the plethora of institutional investors snapping up homes at inflated prices, Julie Zisfein, a senior associate with Auction.com Research, tells GlobeSt.com. The trend is “damaging affordability, putting potential buyers on the sidelines” and pushing buyers out of the market into the multifamily sector, Zisfein says.

The conclusion comes from the latest set of housing reports including the MBA Mortgage Applications Survey and National Association of Realtors, which indicate that mortgage applications and existing home sales are on the decline. (The release of new home sales data has been delayed due to the government shutdown.) Sales of existing homes have fallen for two consecutive months, yet home prices are on the rise as is the percentage of institutional buyers in the residential market, indicating that these investors are driving traditional homebuyers out of the market.

A total of 5.1 million existing homes were sold nationally in October, and Zisfein says while this is a 6% increase from a year ago, it's still a downward trend for the last couple of months as 5.4 million were sold in August. “Looking at it on a chart, you can really see the decline. There has been a slow and steady recovery up until now, but the two-month snag looks like it's for real. It's the biggest consecutive decline we've seen since the expiration of the tax credits in 2009 and 2010. Since that little bump and drop we saw then, this is the biggest loss in home sales we've seen.”

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With investors snapping up distressed homes and forcing prices up, homeowners who have been delaying putting their homes up for sale may decide to do so now, but the rising prices may also make it impossible for the typical buyer to buy a home. “Prices are up 12.8% from a year ago, and inventories are shrinking,” says Zisfein. “It's really investor driven, and that's our concern.”

She adds that since the middle of June through mid-November, mortgage applications have been slowing, which could be a function of rising interest rates. “It seems like the traditional homebuyer is pulling out of the market. We're not in danger of the recovery falling apart, but this softening will continue for a little bit.”

Adding to the concern is the sense that people are not considering homebuying to be a safe bet after the housing crash. “Part of what led to the housing bust was that owning a home was seen as a sure investment, but now it's seen as a risk,” says Zisfein. “People are frightened to go into that market again because they got burned.”

In addition, household formations have also been on the decline, she adds. “Kids are moving back home after college and staying there until and after getting married. The household formation rate is an indicator of organic housing demand. The normal household formation rate is 1.3 million households formed in a year, but recent data shows that only 500,000 households have been formed as of September. That's down to what it was in early 2010 when we were just getting out of the recession.”

Also, despite decreasing unemployment numbers, the jobs that are being added have largely been temporary, Zisfein says. This is another detractor to traditional homebuyers. “From an investor's point of view, there's a whole new market of buying and flipping out there. But the average Joe who wants to buy a house is not doing it.”

As GlobeSt.com reported last week, fewer homebuyers than ever are purchasing new homes vs. existing inventory, according to locally based consumer-research company iHave5Questions. The firm reports that new-home sales represent less than 7% of all homes sold this year, a figure significantly below historic levels of 16% to 17% newly built.

Instant Insights /

Average Joe Isn't Buying a Home

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