Could Real Estate Investors Ruin America's Communities?

The U.S. needs to unload foreclosures, but some worry investors will change the face of neighborhoods.


The good news? People are buying more government- and bank-owned properties, which should help soak up the nation's excess inventory of homes for sale.

The (arguably) not-so-good news? An increasing number of those buyers are investors, not average Americans, according to a study by New Vista Asset Management. That has many people concerned that a flood of real estate investors to hard-hit markets could change the face and personality of neighborhoods and ultimately drive down home values.

"We are troubled by the significant drop in owner-occupant purchase of REO properties in these hard-hit markets," Kevin Stein of the California Reinvestment Coalition said in a statement. "The increased investor acquisition of REOs is reversing the years of community development progress that nonprofits have facilitated throughout California."

[Read: Let It Snow: Housing Market Heats Up.]

California has seen some of the steepest drops in so-called owner-occupant purchases—families that buy homes as opposed to investors—which, while handy in the crusade to burn through the nation's gigantic inventory of foreclosures and homes for sale, could have some unintended consequences.

Owner-occupant purchases in Los Angeles accounted for nearly 80 percent of REO sales in 2009. Now, they account for just 60 percent, and the trend is expected to continue downward.

Why does it matter? Long term, communities with higher numbers of owner-occupants tend to have less crime and higher rates of education among residents, says Brian Hurley, president and COO of New Vista Asset Management.

"To the extent that distressed housing often represents at least 30 to 50 percent of all real estate transactions in the residential space, the question we're asking is what are we doing to these communities?" Hurley says. "Are we, in the process of disposing of REOs, accelerating some of these negative outcomes that have been reversely correlated to owner occupancy?"

At this point, it's hard to say, but the trends could get clearer as the nation continues to flush out foreclosures and deal with government- and bank-owned properties.

[Read: President Obama Still On Top With Homeowners.]

"There has to be a way to balance the objectives of lenders—namely get these properties sold as quickly as possible at the highest possible price—along with the needs of communities, which is to make sure that homeowner access to property at a period of unprecedentedly low housing prices and unprecedented affordability is addressed and that community vitality and neighborhood stabilization occurs as well," Hurley says.

Twitter: @mmhandley

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