(MoneyWatch) Rising home prices appears to be discouraging some real estate investors from putting money in the sector.
The number of investment properties purchased last year fell 2.1 percent to 1.21 million, from 1.23 million in 2011, according to the National Association of Realtors. These institutional investors also make up a smaller number of overall home buyers, dropping to 24 percent in 2012, from 27 percent the previous year. Still, while that figure is shrinking, investment buyers still make a larger-than-normal percentage of home sales.
"Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that could be quickly turned into profitable rentals," said Lawrence Yun, chief economist for the trade group, in a statement. "With rising prices and limited inventory, notably in the low price ranges, investors are likely to step back in coming years."
Investor purchases have helped clear these homes from the market, keeping inventory low and pushing home prices upward. In fact, the median investment-home price was $115,000 in 2012, up 15 percent from $100,000 in 2011. That price jump is almost twice the 8 percent price growth in the overall market, according to researcher Case-Shiller.
A move by investors out of the housing market could undermine prices as excess inventory begins piling up. But as the economy recovers, any slack in the market could be picked by traditional home buyers.
Indeed, that trend may be under way. According to the NAR, buyers looking to purchase a home also picked up this year, making up 65 percent of total buyers, compared to 61 percent last year. While the number of properties bought by investors dropped 2 percent, the number of properties purchased by residential home buyers increased 17.4 percent -- a large jump -- from 2.8 million in 2011 to 3.3 million in 2012. If demand from typical buyers keeps pace, investors may be able to exit the market without causing major ripples in the recovery.
It also doesn't appear that investors are eager to unload their purchases. Six percent of homes purchased by investment buyers last year have already been resold, and another 8 percent are planned to be sold within a year. Overall, investment buyers plan to hold the property for a median of eight years, up from five years in 2011, the NAR study shows.
"Property flipping modestly increased in in 2012," Yun said. "However, this isn't flipping in the sense of what took place during the housing boom. Rather, investors generally are renovating and improving properties before placing them back on the market to resell at a profit."