America’s Housing Stock: Who Holds It And Who’s Buying?
Post-bust, who holds America’s housing stock? And how will the owners impact home selling and buying in 2015?
Home prices are up. Inventories are down, yet demand from first-time buyers and younger repeat buyers is tepid. And investor buying has slowed, but investors are holding huge portfolios of rental homes.
So experts say that the housing recovery will grind on in 2015, with more traditional sales and new types of investors. Plus the foreclosure inventory, which is still quite large, will continue to impact home pricing, sometimes in surprising ways.
The Phoenix area is one place where investors went large in buying up single-family homes the past few years.
“This year will look a lot like the second half of 2014,” said Guy Cecala, publisher of Inside Mortgage Finance. “A market that’s growing, perhaps not as fast as everyone would like, but still growing.”
He says the field is returning “to a much more traditional housing market, where investors play a much smaller role and the market is more dependent on regular buyers.”
Despite improvements, foreclosures and distressed properties are still part of today’s residential housing market.
“We show 421,164 residential properties that are still bank-owned, with an additional 642,927 in default and in the foreclosure process but not yet foreclosed, for a total of 1,064,091” at year-end, said Daren Blomquist, vice president at RealtyTrac, in an email Thursday.
“So there’s a lot of property still in the foreclosure pipeline,” he said. Blomquist adds that at the 2010 high point, foreclosures (defaults and bank-owned properties) totaled 2.2 million.
However, much of the dreaded “shadow inventory” of foreclosures — homes in various stages of foreclosure but not on the market — never ended up on the multiple listing service (MLS), a real estate data exchange. Instead, lenders sold inventory in bulk to big real estate investment trusts (REITs) and other investors, says Blomquist. Thus these “sales” impacted the market but didn’t cause as much price drag as some market watchers predicted.
House Prices In 2015
Home price increases slowed in 2014, which most observers saw as a good thing. To spur demand, buyers need to be able to afford a home, especially since credit is still tight.
But less distressed sales will actually boost prices overall, says Tom Popik, research director of the HousingPulse Tracking Survey by research and consulting firm Campbell Surveys.
Why will prices rise? Popik says that REOs (real estate owned, an industry term for lender-owned properties), short sales and damaged REOs all trade at a discount of 25% to 40% of regular home prices.
“So as the proportion of distressed sales falls, home prices (overall) go up,” Popik said. Thus if the foreclosure market clears too fast, it could actually hurt the housing recovery by ratcheting up prices.
In its latest numbers, released January 17, HousingPulse said that distressed sales were 23% of total sales in December. That’s up slightly from the lowest level in four years, which was 21.3% in September 2014. But it’s way down from a high of 45.5% of sales in March 2011. In December 2014, current homeowners accounted for 47.5% of buyers, 36.3% were first-timers and 16.2% were investors.
And U.S. home inventory remains low, thus putting upward pressure on prices.
Large investors or institutional investors, which RealtyTrac classifies as those who’ve purchased 10 or more properties in a year, accounted for roughly 5% of the market in the past three years. But that’s a big understatement when you look at markets where they’ve been very active.
REITs Buy, Rent And Sell
RealtyTrac says that from 2012 through 2014 in the Phoenix (Maricopa County) area — big investors’ favorite county in which to invest — they purchased 19,133 single-family homes, or 8.66% of all sales in that period. In second place, the Charlotte area of North Carolina (Mecklenburg County), they purchased 8,852 single-family homes, or a whopping 19.55% of sales, during the same period.
In addition, big investors acquired 24,887 single family homes in nine different Atlanta-area counties between 2012 and 2014. In Henry County, the acquisitions accounted for 32.72%, or nearly a third, of all sales from 2012 through 2014.
Also, Blomquist says that his data comes from public sales records, but many investors buy using a variety of LLCs, which makes sales hard to track. So Blomquist thinks the numbers may be low.
The four largest institutional investors in single-family homes from 2012 to 2014 were Invitation Homes (owned by Blackstone Group (NYSE:BX), American Homes 4 Rent (NYSE:AMH), Colony American Homes and Fundamental REO, according to RealtyTrac. (Blackstone gets a strong 90 Composite Rating from IBD out of a possible 99.)
After their shopping spree of the past few years, observers might think that REITs and other big investors are now sated. And some worry that they might sell parts of their portfolios. Blomquist says that big investor buying will slow but not stop. He adds that some will be “selling in one market and buying in a different market” to get “better-performing inventory.”
Rents are still high and expected to stay high, so REITs have reason keep their rental stock. Besides, the return that they make from their properties is what attracts investors to their funds.
“In some markets rents will ease, but in others they will continue very strong or re-accelerate,” said David Toti, senior REIT analyst at Cantor Fitzgerald in New York. Toti covers REITs that invest in commercial real estate and multifamily residential real estate.
Though Toti sees rents as staying strong, he’s not pushing the REIT asset class.
“We see returns as flat to slightly negative as an overall asset class,” he said. “We’re slightly negative on the group.”
Toti says that an increase in interest rates will hurt REITs.
“Lending has returned to more normal level,” he added, thus enabling private investors to compete with REITs.
Oddly enough, some of the access to capital is coming from a REIT. Blackstone Group has started a financing arm for property investors called B2R Finance.
Toti also says that REITs will continue to face stiff competition for attractive assets from buyers outside the U.S.
“If growth around the world continues to be slow, then more capital is going to flow to the U.S.,” Toti said.
Private Investors Thriving
A new type of U.S. home investor is emerging to buy rentals, says Rick Sharga, executive vice president at Auction.com.
He calls them “midsize investors” — a “new category.”
Some investors are also forming groups “to buy and own a few hundred to a few thousand properties focusing on certain geographic areas,” Sharga said.
He adds that they’re trying new means of financing, including crowdfunding (raising money from large groups of people, typically via the Internet). Realty Mogul (realtymogul.com) is one example. It’s an online marketplace where investors can pool money and buy shares of investment properties.
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