Investors helped to fuel housing boom

U.S. home sales would have been little changed last year had it not been for investors, who were lured by price increases that soared as much as 49 percent in some regions of the country.

As sales of new and existing houses rose 4.6 percent to 8.36 million, investment purchases represented 28 percent of the total, up from 25 percent in 2004, according to data released Wednesday by the National Association of Realtors in Washington, D.C. Excluding investments, sales rose 0.9 percent to 5.99 million.

Investors seeking alternatives to stocks helped fuel the housing boom by competing for property and bidding up prices, prompting former Federal Reserve Chairman Alan Greenspan to warn of "froth" in the real-estate market. Rates for the adjustable loans favored by investors climbed about 1 percentage point as the Fed raised its benchmark rate eight times last year.

"The bulk of the decline in home sales this year will come from investors leaving the housing market," said David Berson, chief economist of mortgage buyer Fannie Mae. "If home price gains have peaked, as we expect, and financing is more expensive, investors are going to find someplace else to put their money."

Home sales probably will decline 8.9 percent to 7.61 million this year, Berson, 51, said. The average rate for a 30-year mortgage that adjusts annually likely will increase to 5.44 percent from 4.48 percent last year, he said.

Home prices, which rise about 5 percent a year on average, gained 12 percent to $208,300 in 2005, the biggest jump in 26 years, according to NAR data. Investment properties, which are resold without the buyers ever living in them, had price appreciation of 24 percent last year. The Standard & Poor's 500 Index of U.S. stocks, in comparison, rose about 6 percent.

Sales of vacation homes, which are used by purchasers as a second home and sometimes rented, rose 17 percent from a year earlier to 1 million, the brokers' group said. The price of vacation homes climbed 7.4 percent, according to the report.

The median price increase of a house in the U.S. probably will slow to 5.8 percent this year, the trade group said in a March 13 forecast.

Investment-home buyers had a median age of 49, income of $81,400 and bought property about 15 miles from their primary residences, according to the study released Wednesday. Those buying vacation homes had a median age of 52 years, income of $82,800 and purchased real estate 197 miles away.

Wednesday's report was based on two surveys conducted by the trade group, including one mailed to a national sample of 145,000 people who bought their homes in 2004 and 2005.