Investors Finding Fewer Opportunities

Where have all the real estate investors gone?

After a few years of playing starring roles in the region's bidding wars, investors and speculators won't be jamming up open houses this spring, market-watchers say.

With home values sky-high and no longer zooming higher, it's increasingly difficult for folks to buy property, spruce it up, flip it and break even, what with commissions and closing costs -- let alone make money.

And investing is getting costlier as well, with adjustable-rate mortgages, favored by investors, inching up faster than traditional mortgages. The 30-year, fixed-rate mortgage averaged 6.32 percent this week, compared with 5.95 percent around the same time a year ago, Freddie Mac said. The five-year adjustable-rate mortgages averaged 5.96 percent this week, compared with 5.31 percent last spring.

Investors are "getting run out of the market more and more," said Nicholas Buss, senior vice president of PNC Real Estate Finance. "We're seeing that across most of the hot markets, and I'll throw D.C. into that bucket."

The signs are everywhere: Developers are no longer selling out condos the day they go on sale. "Never-lived-in" investor-owned properties are languishing on the market. And real estate agents around the region have been reporting declining sales to investors starting in August.

"I have a client who bought 20 units in the past five years -- he has not bought anything lately," said Klaus Breitsameter, a Gaithersburg-based agent with Re/Max Realty Group. "It has definitely slowed down a little bit."

LoanPerformance Inc., a real estate lending information service, said investors nationwide took out 36,300 mortgages in June, at the height of last summer's frenzied real estate market. Since then, the number has declined significantly, to 34,400 in August and 23,000 in October.

And in November, the latest figures available, the number of investor mortgages was 14,900, a figure LoanPerformance said suggested a sharp drop in investor demand, even after accounting for seasonality and other factors.

Locally, many investors have pulled out of the market in the past six months, brokers and market watchers said.

Greg Leisch, chief executive of Delta Associates, an Alexandria-based real estate information firm, said investors make up less than 10 percent of the buying market now, compared with about 30 percent last fall. Moreover, Leisch said, investors buying real estate now are more likely to be those who plan to hold on to homes longer by renting them out, in sharp contrast with the speculators who turned around and sold for a handsome profit even before they took possession of the properties.

Nowhere is the withdrawal more pronounced than in the condo market, favored by investors because units are relatively affordable.

"We've seen a tremendous amount of cancellations -- investors essentially have canceled out of the market," said Leisch, who expects about 2,000 cancellations this year by investors who signed up to buy in the latter half of 2005.

They "were mainly day traders, and they will not be able to flip for an instant profit," he said. "It's having a depressing effect on the market."

Staff writer Sandra Fleishman contributed to this report.