The low end market has gone in a new direction. One would have expected that the availability of reasonable nice homes below $100,000 would have opened the market wide to the low end owner occupant. The cab driver or store clerk could afford to buy a small home at less cost per month than they were spending on rent.
Not to be though. A combination of the low prices for nicer housing and a selling pricess rigged against the owner occupant has had the opposite result. Virtually all the bottom tier of housing is going to investors via cash or conventional loans. The chart below tells the story...
The $101,000 to $200,000 bar gives the sort of distribution one would expect in lower end housing. Maybe 20% investors and second home buyers paying cash. Another 25% of some investors and move up buyers using conventional mortgages and then perhaps 50% of mostly first time buyers using FHA or VA financing.
The under $50,000 bar tells a very different story. Over 80% are cash buyers and over 90% are cash and conventional mortgage buyers. Around 5% are FHA. The message is that investors have completely taken over thel low end of the market.
Practically no. First off more than half the nice small homes listings specify only conventional and cash. In some cases this is because the home has some shortcoming that would have to be fixed for FHA. A working stove being an example. But many have no obvious defects. The listing agent simply feels he can sell it easily for cash or conventional and FHA represents more work.
Whether FHA is acceptable or not these homes are often priced at well less than the competitive price. They then sell as much as 20% over list. This factor also makes it very difficult for an FHA buyer to compete. FHA appraisers are very unlikely to determine a price that is well over list. It is simply not acceptable even if true.
Finally the investor is buying on what the property will yield in rent...not on the cost of comparables. Thus the price an investor will entertain may very well exceed that arrived at by the comparable methodology. While appraisers provide such a methodology in their manual it is questionable whether it is ever used on a low end property. Thus even the standard appraisal method tends to block the owner occupant.
The rub of course is that it is low end neighborhoods that teeter on the brink of being unlivable. Often a core of old timers and a set of new owner occupied attempt to drive the neighborhood upward or at least hold it where it is. Some mix of renters is virtually always in this mix. But if the renter population becomes an increasing portion of the block it tends to cause destabilization and trouble. The old timers then give up and the owner occupieds move on and the socio-economic level of the block drops some notches.
Kind of a formula to make bad neighborhoods out of good ones.