Institutional investors entered the housing market at a rapid pace this past year, but their level of purchasing activity is relatively small compared to the overall market.
For instance, Blackstone Group (BX) is expected to be the largest institutional purchaser in 2013, committing to 15,000 properties.
However, when compared to the 600,000 individual investor purchases in 2012, it’s clear that institutional investors are still the underdogs in the market, according to CoreLogic’s market pulse report.
To come to this conclusion, CoreLogic created a list of 16 markets that include the top five markets for REO declines, the top 10 markets ranked by the total of REOs and the top REO markets identified as attractive by investors.
After the housing crisis, individual investor activity plummeted to about 10,000 monthly purchases. Since the crash, individual investors have slowly gained momentum, becoming a large force in 2012 and the expected dominator in 2013, CoreLogic said.
For instance, individual investor purchases swelled to more than 50,000 units by the end of 2012, the highest level since 2006, according to CoreLogic.
While institutional investors are rapidly entering the market, they are investing in a 'targeted manner,' focusing on preferred metropolitan statistical areas.
Specifically, Atlanta, Las Vegas and Phoenix are three markets that posted a notable rise in the share of institutional investors grabbing real estate, the data firm explained.
"Not coincidentally, they were the markets with the largest percentage of numerical declines in REOs last year. The institutional share of investors in these markets in 2010 and 2011 was flat, but in 2012 they rapidly increase their purchases," the report said.
Relative to individual investors, who have steadily increased their presence in the space since 2010, the rise in institutional investment activity growth has been confined to last year.
"The important takeaway is that this a small class of buyers that has grown significantly over the last year," CoreLogic explained.
As a result of the growing interest in both individual and institutional investor demand, REO prices are increasingly in high-demand markets.
Thus, all 16 markets are experiencing increases in REO prices with Phoenix leading the way.
In the fourth quarter of 2012, Phoenix REO prices were 37% higher than a year ago, followed by Las Vegas and several California markets.
All six markets with rising shares of institutional investors experienced double-digit increases and were among the top markets for REO price appreciation, according the CoreLogic.
Consequently, lower-end home prices are experiencing the ripple effects of the REO price hikes. Markets with rising shares of institutional investors are up 15% from a year ago, compared to 6% for the remaining markets.