Short Sales, Foreclosures, Attractive to Foreign Investors and House Flippers

While the pace of foreclosures dropped last month, there is still a massive supply of distressed and foreclosed properties that are on the market or are due to hit the market soon.  While it is unclear exactly how many such properties exist, most agree that the number is staggering.  Although new housing starts are down, it will still take some time for the excess supply to be absorbed.  Only when the supply is reduced will the housing market truly rebound. Trends show that two unexpected groups are among those stepping into the breach to purchase these properties: foreign investors and home flippers, taking advantage of bargain prices and low mortgage rates.

Take for instance the California housing market which was one of the hardest hit by the housing bubble.  Prices rose exponentially in the mid-2000s, only to collapse when the growth became unsustainable.  In 2009 foreclosure sales made up 50% of all homes sold in California.  Although housing prices in California rose in the last Case-Shiller house price report, they are still far below peak levels.  In California there has been a noticeable increase in the number of properties purchased by foreigners, primarily from China and India.

China is experiencing a housing bubble of its own. Home prices in Shanghai, Beijing, and most other Chinese cities have gone sky-high, fueled by demand and double digit economic growth. As the Chinese middle class becomes more affluent, buying a house at a bargain price in The United States becomes more feasible, and especially makes sense for parents who are looking to house their children who are attending college in the United States. The number of foreign-born students at American universities is increasing.  Nearly 700,000 students at American colleges were foreign, up 8% from last year.  These students and their families make up a large number of foreign investors in American real estate.  There has also been an influx of European and Middle Eastern investors purchasing homes in undervalued East Coast markets such as Florida and the Carolinas, either as an investment or a vacation property.

In addition to foreign investors, the number of people who are flipping houses has also increased dramatically. As property values across the country have collapsed, many houses have actually become undervalued.  Investors are purchasing bargain properties and either renting them out or renovating them and selling them at a profit.  While house flippers helped to drive the speculative housing bubble in the later half of the last decade, these flippers are benefiting the market by purchasing these distressed properties.

The increasing number of people investing in the housing market is a promising sign of confidence in the viability of the real estate market.  While there are still many hurdles (such as unemployment) for the housing market to clear, recent developments are more and more positive.

What do you think about the opportunities presented by market conditions? Join the discussion below.