Tuesday, April 30, 2013
Wall Street investment firms are feverishly grabbing single-family homes,
Wall Street investment firms are feverishly grabbing single-family homes, the Washington Post reports.
Wall Street's been buzzing about this trade for a while.
Institutional investors are taking advantage of cheap inventory, combined with our low interest rate environment, to make double digit returns from renting or re-selling homes. As a result, markets in some places are recovering rapidly — Phoenix, for example, has seen single-family home prices rise 23% in the past year.
There are questions as to whether this situation is good for the average consumer. If prices rise while jobless rates remain high, it could take longer for the "end-user" of a property to raise the cash to afford a home.
“Clearly the investors are moving markets in some places,” said Dean Baker, co-director of the Center for Economic and Policy Research and author of a popular housing blog. “In some markets at the bottom end, you are looking at 30 or 40 percent gains year to year. That is frightening to me. At some point the music stops. The investors if they get hurt, that is their problem. But invariably a lot of other people will get caught up in that.”
How big is this? Here are a few numbers to give you an idea of how dominant institutional investors are in this space.
Institutional Investors account for as much as 70% of single-family home purchases in some Florida markets.
A recent JP Morgan report says Wall Street has raised $10 billion for this trade. That's enough to buy 15% of all bank owned homes in the U.S.
Cash buyers (who are mostly investment firms) currently buy up 32% of home sales nationally according to the National Association of Realtors.
Blackstone has put together a portfolio of 20,000 rental properties worth $3 billion in the last year alone. The firm has 150 homes in Palm Beach Florida and 500 in the Miami/Broward area reports the Palm Beach Post.
As a result of all this, renters occupy 35% of single-family homes, up 30% since 2005, according to Bloomberg.