Just last year, policymakers turned to real estate investors to rescue the housing market. Scared the foreclosure crisis would drag on for years, the Federal Reserve supported renting out foreclosed homes as a market-based solution.  Fannie Mae even experimented with selling big pools of them to buyers, although the plan never got past the pilot stage. In overwhelming numbers, investors raced to buy up foreclosed homes. Wall Street launched an industry based on buying and renting out homes in bulk, the demand pushing up home prices, in some areas even up to 20% in a year. Now, the inventory on foreclosed homes in those markets is almost gone, but investors keep buying and prices keep rising, making it harder for the average American to afford a house or qualify for a loan. Interestingly enough, all-cash purchases made up an astounding 45% of all residential sales in August, up 30% over the same period last year. A large portion of those buyers are institutional investors, backed by Wall Street money, looking to convert the homes into rentals. An institutional investor is defined as someone who has purchased at least 10 properties in a 12-month period. The invasion of cash buyers poses a challenge for the ordinary person looking to purchase a home to actually live in. Cash buyers have the advantage of bypassing the mortgage financing process. It’s tough for the average American to compete against an investor unless they are very aggressive. Although frustrating, especially for first-time homebuyers, the upswing in home prices has been a much needed relief for borrowers who are underwater. Corelogic, a residential real estate company, recently determined that 2.5 million residential properties returned to positive equity in the second quarter of 2013. The Commerce Department announced on Wednesday that the sales of new homes rose 7.9% in August, but still held at their lowest levels of the year. The data point is proof that the sharp and sudden rise in interest rates may be affecting the housing recovery.  Rates began to surge in May when the Federal Reserve hinted it would soon wrap up its bond-buying stimulus program, gradually increasing the record-low interest rates that provoked the housing boom. In a surprising move last week, the Fed shocked the markets by announcing it would delay reducing monthly bond purchases for now.

Mortgage applications for the week ending September 20th rose 5.5%, including a 6.6% gain in purchase applications and a 4.9% gain in refinance applications. The 30-year fixed rate mortgage fell from 4.75% to 4.62%. The national median sales price in August was $175,000.