Real estate investors are playing a key role in the housing recovery now underway, buying up bank REO property, wading into distressed neighborhoods to turn around boarded-up foreclosures into rentals.

But how much of the fast-rising pace of home sales this summer is attributable to small-scale investors?

You can ask Rick Weinberg of REDC's Auction.com, a company that's already sold more than 19,000 foreclosed and REO houses this year for a total of $4.3 billion, and he'll tell you point blank: Investors are HUGE; they've accounted for 48 percent of all his company's volume in 2009.

"There's absolutely no question," Weinberg told Realty Times last week, "investors are responding to the deep discounts in the market on distressed real estate. They are playing a central role."

Realty Times put the same question to Lawrence Yun, chief economist for the National Association of Realtors, and got a different perspective. Yun believes investors went overboard during the boom years - buying properties for unsustainably high prices and using risky mortgages.

At their peak in the 2004-2005 period, investors accounted for almost 40 percent of all sales.

In the current recovery, on the other hand, says Yun, "investors are playing a very beneficial role," acquiring real estate more prudently. They're looking for prices at the rock bottom end of the cycle, and buying not for future appreciation, but for solid, positive rental cash flows.

With first time buyers now flooding the market, investors' share is more restrained, said Yun, but still important.

Though no one has precise figures, there are two indicators that the National Association of Realtors checks to roughly gauge investor participation in the market: Numbers of Realtor members in a periodic survey who identify purchasers as investors as opposed to owner-occupants, and the number of total sales that are "all cash."

The most recent member survey suggested investors account for roughly one of every eleven sales. Sixteen percent of recent transactions were all cash, one of every six, but that number could include owner-occupant purchasers who have the money and choose to avoid taking out a mortgage.

None of the Realtors' statistics from members include sales from auctions, and that may understate the percentage of investors involved.

But Auction.com's Weinberg says whatever the current market share of investors, "the fact is they are essential" to the recovery. In fact, he said, "Every REO or foreclosure they buy is a boost for the economy. They are creating jobs" -- contractors, carpenters, roofers and the like -- for an economy that badly needs them.

Published: August 28, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.