Everything I’m hearing from the foreclosed real estate market says that that the real estate investors who were buying about a fourth of the foreclosed houses are now holding back, buying much less or hardly anything. The foreclosure market slowed down drastically, people say, between last August and the end of September.
In the foreclosure market, real estate investors are mostly flippers, buying ugly houses, making them look better, and selling them again in less than a year. If they’ve practically stopped buying, it means some combination of:
- They’ve run out of cash. Maybe an investor had set aside money to buy eight bouses, and bought eight, and doesn’t need any more at this point.
- They’re holding on to their cash, expecting better deals in the near future.
- They aren’t confident in selling quickly. It is hard for an investor to make money flipping a house if they hold it for a year or longer.
- They’re more cautious because they’ve taken losses on some recent houses.
None of this is a favorable sign for housing prices. With fewer buyers, the inventory of unsold foreclosed houses will expand, and selling prices will have to fall.