PHOENIX, Ariz. – Jan. 22, 2013 – Major real estate investors are buying fewer homes in some hot markets while expanding in others as they race against rising prices to turn more distressed homes into rentals.
Phoenix, which has led the nation with rapid home-price gains, is among the first markets to see investors’ interest cool.
The percentage of Phoenix homes bought by investors fell to 28 percent in November after cresting at almost 36 percent in August and is now on a “clear downward” trend, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.
Investor interest also may be close to “peaking” in some California markets where prices have risen rapidly, because higher acquisition prices cut financial returns, says John Burns, CEO of Burns Real Estate Consulting.
Meanwhile, major investors are stepping up purchases elsewhere, especially in Southeastern cities such as Atlanta and Tampa. Home shoppers there are now seeing the multiple offers, bidding wars and shrinking supplies of homes for sale that occurred in Phoenix as investors swooped in.
“The Phoenix-like phenomenon has migrated to other markets,” says Sam Khater, economist for CoreLogic. It says Phoenix home prices were up 24 percent in November year-over-year, vs. 7.4 percent for the nation.
Major institutional investors are amassing a $10 billion war chest to pursue the single-family rental market, JPMorgan Chase estimated in a recent research report.
They’re betting that they can get distressed homes on the cheap, fix them up and rent them out, often to families who lost homes to foreclosure, and make money on home price appreciation in a few years.
The companies generally seek three-bedroom, two-bath homes in the $100,000 to $125,000 range that can rent for more than $1,000 a month, analysts say.
With $10 billion to spend, that would roughly equate to 80,000 homes, although the investment funds continue to raise money, says JPMorgan analyst Anthony Paolone. Nationwide, there are currently 12 million single-family rentals, most owned by mom-and-pop investors, Paolone says.
Big buying
The Blackstone Group, for one, has spent $2.5 billion since early last year buying 16,000 homes. It’s now adding 2,500 homes a month, it says. It’s believed to be the biggest player in the group, but most are private, so information is limited.
Colony Capital expects to invest up to $150 million a month this year to acquire single-family rentals. It bought 5,000 homes last year, it says.
Waypoint Homes, one of the market’s pioneers, expects to own 10,000 homes by year’s end. It started four years ago in the San Francisco Bay Area and owns 3,300 homes, says managing director Doug Brien.
Like many of the big investors, Blackstone started investing in Phoenix.
It next moved into California, then Atlanta, Tampa, Orlando, Chicago, Las Vegas and Charlotte.
Blackstone has accelerated its buying because home prices have risen faster than it expected, says Jonathan Gray, Blackstone’s head of real estate. In some markets, the window to buy before prices rise too much “is closing faster” than in others, he says.
Colony, for instance, has slowed purchases in Phoenix. Consultant Burns says Atlanta may be the hottest investor market now. Local real estate experts are seeing the impact.
Investors “are a significant force in the market right now,” says Mike Prewett, president of Southern REO Associates in Atlanta.
Prewett estimates that investors are buying 40 percent of foreclosed homes in the Atlanta area, triple the level of a year ago. Almost all foreclosures for sale draw multiple offers, often 10 or more, Prewett says.
Tampa, too, has seen an uptick, Realtors say.
A year ago, $125,000 homes in foreclosure could have been purchased “all day long,” says Brad Monroe, managing broker for Prudential Tropical Realty in Tampa. “Now, there’s 16 offers on each one of them within two days,” many from cash-paying investors.
Tampa’s inventory of homes for sale in December stood at 3.3 months, based on the pace of sales. That was about half its level of a year earlier, data from the Greater Tampa Association of Realtors show. Generally, a six-month supply is considered a balanced market between buyers and sellers.
Atlanta’s November home prices were up almost 5 percent from a year ago. Tampa posted a similar gain, CoreLogic says.
Lure of deep slumps
Institutional investors have largely circled cities that were hardest hit by the real estate downturn that started in 2006.
In Phoenix, home prices fell almost 60 percent from their pre-bust peak before they started to recover. Las Vegas posted a similar drop. Tampa dropped almost 50 percent.
The markets have more going for them than just cheap home prices. Phoenix, Tampa, Atlanta and Las Vegas – all markets where investor buyers are busy – have seen positive year-over-year job growth since July 2011. That will help drive housing demand, JPMorgan says.
The first task for investors is to buy at the right price. In many hard-hit markets, prices have bounced faster than anyone anticipated even a year ago. That’s made good buys harder to find, says Rick Sharga, executive vice president at Carrington Mortgage Holdings.
In recent months, Carrington has slowed its buying in single-family rentals, Sharga says. “As prices go up, it gets harder for investors to get the returns they’re looking for.”
In his report, analyst Paolone also warned that too many investors shopping in the same areas will drive prices up and eat into rental returns.
Burns says that’s already happening in some places. Single-family rentals that returned 10 percent annually three years ago may now be running closer to 6 percent. That’s too low for some investors, he says.
Nationwide, investors purchased 19 percent of homes in November, the National Association of Realtors says, down from 23 percent of sales in January and February of last year.
NAR economist Lawrence Yun says the percentage of homes being purchased by investors might decline more this year as regular home buyers make up more of the market, assuming a continued economic recovery.
Burns’ data show investors accounting for much higher levels of total home sales in some cities. It also shows a leveling off or decline in recent months in the share of homes bought by investors in a variety of markets, including Tucson; Oakland; Tacoma, Wash.; Minneapolis; Washington, D.C.; and Durham, N.C.
Burns also says a peak may be near for Sacramento and Riverside. Both California cities have seen home prices rise faster than the national average, CoreLogic data show.
In November, Sacramento prices were up almost 13 percent year-over-year. Riverside’s were up 10 percent.
Tight inventories will also slow investors, Burns says.
In Sacramento, the inventory of homes for sale fell to 1.6 months in December, based on the pace of sales, the California Association of Realtors says.
“These guys (investors) have bought up everything that’s worth buying in many of the hardest-hit markets,” Burns says.
The value of good timing
Even if investors slow purchases in a city, they may circle back around, says Waypoint’s Brien.
Waypoint was late to get to Phoenix, starting purchases there only last year. But as competitors have slowed buying there, Waypoint has seen “a little bit better buying opportunity,” Brien says.
He expects the same thing to happen elsewhere. Investors will pull back when prices rise too fast, then return when price gains slow, as more people list homes for sale.
“There’s a lot to buy and a lot to buy attractively,” says Justin Chang, Colony Capital principal.
While investor buyers have helped prop up prices, they’re making it tougher for regular home shoppers to compete.
Tom and Cyndi Vander Ven have been shopping for a home in Atlanta since September. The retired couple, both teachers, want to downsize.
They’ve lost out on three bids so far, even though they offered more than the asking price. Their Realtor told them investors had outbid them, Tom Vander Ven says.
They would have made more offers by now, but other homes they see listed are sold “before we can even move on them,” he says.
Phoenix, which has led the nation with rapid home-price gains, is among the first markets to see investors’ interest cool.
The percentage of Phoenix homes bought by investors fell to 28 percent in November after cresting at almost 36 percent in August and is now on a “clear downward” trend, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.
Investor interest also may be close to “peaking” in some California markets where prices have risen rapidly, because higher acquisition prices cut financial returns, says John Burns, CEO of Burns Real Estate Consulting.
Meanwhile, major investors are stepping up purchases elsewhere, especially in Southeastern cities such as Atlanta and Tampa. Home shoppers there are now seeing the multiple offers, bidding wars and shrinking supplies of homes for sale that occurred in Phoenix as investors swooped in.
“The Phoenix-like phenomenon has migrated to other markets,” says Sam Khater, economist for CoreLogic. It says Phoenix home prices were up 24 percent in November year-over-year, vs. 7.4 percent for the nation.
Major institutional investors are amassing a $10 billion war chest to pursue the single-family rental market, JPMorgan Chase estimated in a recent research report.
They’re betting that they can get distressed homes on the cheap, fix them up and rent them out, often to families who lost homes to foreclosure, and make money on home price appreciation in a few years.
The companies generally seek three-bedroom, two-bath homes in the $100,000 to $125,000 range that can rent for more than $1,000 a month, analysts say.
With $10 billion to spend, that would roughly equate to 80,000 homes, although the investment funds continue to raise money, says JPMorgan analyst Anthony Paolone. Nationwide, there are currently 12 million single-family rentals, most owned by mom-and-pop investors, Paolone says.
Big buying
The Blackstone Group, for one, has spent $2.5 billion since early last year buying 16,000 homes. It’s now adding 2,500 homes a month, it says. It’s believed to be the biggest player in the group, but most are private, so information is limited.
Colony Capital expects to invest up to $150 million a month this year to acquire single-family rentals. It bought 5,000 homes last year, it says.
Waypoint Homes, one of the market’s pioneers, expects to own 10,000 homes by year’s end. It started four years ago in the San Francisco Bay Area and owns 3,300 homes, says managing director Doug Brien.
Like many of the big investors, Blackstone started investing in Phoenix.
It next moved into California, then Atlanta, Tampa, Orlando, Chicago, Las Vegas and Charlotte.
Blackstone has accelerated its buying because home prices have risen faster than it expected, says Jonathan Gray, Blackstone’s head of real estate. In some markets, the window to buy before prices rise too much “is closing faster” than in others, he says.
Colony, for instance, has slowed purchases in Phoenix. Consultant Burns says Atlanta may be the hottest investor market now. Local real estate experts are seeing the impact.
Investors “are a significant force in the market right now,” says Mike Prewett, president of Southern REO Associates in Atlanta.
Prewett estimates that investors are buying 40 percent of foreclosed homes in the Atlanta area, triple the level of a year ago. Almost all foreclosures for sale draw multiple offers, often 10 or more, Prewett says.
Tampa, too, has seen an uptick, Realtors say.
A year ago, $125,000 homes in foreclosure could have been purchased “all day long,” says Brad Monroe, managing broker for Prudential Tropical Realty in Tampa. “Now, there’s 16 offers on each one of them within two days,” many from cash-paying investors.
Tampa’s inventory of homes for sale in December stood at 3.3 months, based on the pace of sales. That was about half its level of a year earlier, data from the Greater Tampa Association of Realtors show. Generally, a six-month supply is considered a balanced market between buyers and sellers.
Atlanta’s November home prices were up almost 5 percent from a year ago. Tampa posted a similar gain, CoreLogic says.
Lure of deep slumps
Institutional investors have largely circled cities that were hardest hit by the real estate downturn that started in 2006.
In Phoenix, home prices fell almost 60 percent from their pre-bust peak before they started to recover. Las Vegas posted a similar drop. Tampa dropped almost 50 percent.
The markets have more going for them than just cheap home prices. Phoenix, Tampa, Atlanta and Las Vegas – all markets where investor buyers are busy – have seen positive year-over-year job growth since July 2011. That will help drive housing demand, JPMorgan says.
The first task for investors is to buy at the right price. In many hard-hit markets, prices have bounced faster than anyone anticipated even a year ago. That’s made good buys harder to find, says Rick Sharga, executive vice president at Carrington Mortgage Holdings.
In recent months, Carrington has slowed its buying in single-family rentals, Sharga says. “As prices go up, it gets harder for investors to get the returns they’re looking for.”
In his report, analyst Paolone also warned that too many investors shopping in the same areas will drive prices up and eat into rental returns.
Burns says that’s already happening in some places. Single-family rentals that returned 10 percent annually three years ago may now be running closer to 6 percent. That’s too low for some investors, he says.
Nationwide, investors purchased 19 percent of homes in November, the National Association of Realtors says, down from 23 percent of sales in January and February of last year.
NAR economist Lawrence Yun says the percentage of homes being purchased by investors might decline more this year as regular home buyers make up more of the market, assuming a continued economic recovery.
Burns’ data show investors accounting for much higher levels of total home sales in some cities. It also shows a leveling off or decline in recent months in the share of homes bought by investors in a variety of markets, including Tucson; Oakland; Tacoma, Wash.; Minneapolis; Washington, D.C.; and Durham, N.C.
Burns also says a peak may be near for Sacramento and Riverside. Both California cities have seen home prices rise faster than the national average, CoreLogic data show.
In November, Sacramento prices were up almost 13 percent year-over-year. Riverside’s were up 10 percent.
Tight inventories will also slow investors, Burns says.
In Sacramento, the inventory of homes for sale fell to 1.6 months in December, based on the pace of sales, the California Association of Realtors says.
“These guys (investors) have bought up everything that’s worth buying in many of the hardest-hit markets,” Burns says.
The value of good timing
Even if investors slow purchases in a city, they may circle back around, says Waypoint’s Brien.
Waypoint was late to get to Phoenix, starting purchases there only last year. But as competitors have slowed buying there, Waypoint has seen “a little bit better buying opportunity,” Brien says.
He expects the same thing to happen elsewhere. Investors will pull back when prices rise too fast, then return when price gains slow, as more people list homes for sale.
“There’s a lot to buy and a lot to buy attractively,” says Justin Chang, Colony Capital principal.
While investor buyers have helped prop up prices, they’re making it tougher for regular home shoppers to compete.
Tom and Cyndi Vander Ven have been shopping for a home in Atlanta since September. The retired couple, both teachers, want to downsize.
They’ve lost out on three bids so far, even though they offered more than the asking price. Their Realtor told them investors had outbid them, Tom Vander Ven says.
They would have made more offers by now, but other homes they see listed are sold “before we can even move on them,” he says.
Source: http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=2&id=286367
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