Photo credit: Lendingmemo
The housing market has evolved from high foreclosures and falling prices during the Great Recession to increasing prices and erratic market performance. Every other day, we are bombarded with news about home sale figures, mortgage rate information, renting versus buying debates and new home construction starts data. While housing experts have their own spin on the market, one thing is certain, would-be first time homebuyers are not showing up at the closing table. They are choosing to rent instead.
As home prices fell during the Great Recession, big institutional investors went on buying sprees. After the recession’s end, home prices started trending upwards and with this understanding, the investors had to change their investment focus.
The investors that acquired the portfolios of thousands of homes for rent are now shifting their acquisition strategies away from bulk portfolio buying to becoming more disciplined and market oriented. The Blackstone Group, the largest of the investor companies, recently announced that it was concentrating on buying future single family homes in a few markets: Atlanta, Miami, Orlando, Seattle and Tampa. Blackstone also said they purchased 70 percent less homes than its peak in 2013.
Part of the reason investor companies are reducing their acquisitions and focusing on fewer markets is that home prices have increased from their historic lows during the recession. According to CoreLogic, national home prices increased 12% year over year as of January 2014, with prices ranging from mid-single digits to 27% in northern California.
“The housing recovery has been uneven across the nation and we are no longer able to buy some of our Western markets, although we remain excited about many others, where we can still acquire homes at a discount to replacement cost and attractive rental yields,” said David Miller, president and CEO of Silver Bay Realty Trust, the first company to convert to single-family REIT. “Florida, for example, leads the nation with the highest foreclosure inventory at 6.7%, which should provide a continuing supply of distressed inventory in 2014.”
Just as Blackstone did, Silver Bay has decided to focus on purchasing in select markets, including Texas and Atlanta. Blackstone, known for being innovative, completed the first and so far only securitization backed exclusively by loans secured by single family rental units. The other SFR aggregators are taking notice.
Moody’s Investors Service cited several reasons why it expects demand for SFRs will continue to grow: the improving economy will help boost the number of households, less affordability because of increasing interest rates and housing prices and mortgage availability for credit challenged borrowers.
See Is the Middle-class Being Priced out of Home Buying?
Costar.com “Single-Family Rental Giants Adapt to Changing Housing Market” 2 July 2014. http://www.costar.com/News/Article/Single-Family-Rental-Giants-Adapt-to-Changing-Housing-Market/158576
Joint Center for Housing Studies of Harvard University “The State of the Nation’s Housing 2014” 2 July 2014. http://www.jchs.harvard.edu/research/state_nations_housing