I’ve been obsessed lately with the growing evidence of the next speculative housing bubble – the mass quantities of distressed and foreclosed properties being scooped up by hedge funds and other institutional investors, who plan to rent them out for a few years.
We see the shift to single-family home rentals in the American Community Survey data for 2011, so this shift is already a year old. But investors, envisioning a bottom in the market and capitalizing on public policy to sell off the inventory, have pushed into this space in a big way in 2012, providing almost the entire margin of the modest recovery this year.
While banks still resist extending credit to many borrowers, they are getting paid off for their REO (real estate owned) property in cash – even while they are extending the loans to the investment firms, so they can build the capital to purchase the homes. Banks would also participate in the proposed securitizations of rental revenue that would get sold off to another class of investors. So you see banks playing all sides of this bet. It’s not that banks are holding back a housing recovery by denying credit – they’re goosing a housing recovery through selling off properties to speculative firms. Anyway, those non-investor deals have a habit of falling through – selling off properties to hedge funds and private equity firms is easy money.
Here’s just one example of the kind of deals we’re seeing out there.
The Blackstone Group plans to buy homes impacted by the slumping housing market at a total value of $1 billion in the Tampa Bay area.
Blackstone, a private equity group, will use the homes as rental properties, the Tampa Bay Times said.
The entrance of the firm will likely tighten competition on the housing market, the Times said.
The plan is to purchase 15,000 homes over a three-year period in one city, Tampa, in one deal. Blackstone tried to roll this back the next day but acknowledged that “the Tampa Bay area is one of several metro areas it is looking at for buying properties,” and that they have already started acquiring them. They appeared more angry that someone blew the whistle on the expansiveness of their investment than anything else.