As Investors Shift Housing Is The New Stock Market
As Investors Shift Housing Is The New Stock Market
All it took was a historic crash that created an epic
opportunity: Housing has morphed from a form of shelter to one of the most
popular tradable assets, thanks to a huge influx of institutional investors in
a mammoth, albeit decreasing, supply of distressed properties. That is why it
should come as no surprise the housing market is now nearly as volatile as the
"We've seen more volatility in real estate in the past five
years than we have in the past 500," said Glenn Kelman, CEO of Redfin, an
online real estate sales company.
Nothing proved that better than news last week that sales of
newly built homes had plunged over 13 percent month-to-month in July while
another report showed healthy gains in sales of existing homes in July.
Suddenly, bulls became bears, and blame poured from every blog. Rising mortgage
rates, sagging confidence, tight credit, tight supply, even bad weather made
the long list of woes, but one stood out in particular—investors pulling out of
the housing market.
"We definitely see the investor market cooling early in the
season," noted Kelman. "You had Wall Street at some point becoming
frustrated because you just couldn't buy in bulk the kinds of inventory they'd
been able to get in 2012, 2011, and so those investors started to pull
Investors made up just 16 percent of home buyers nationally in
July, according to the National Association of Realtors, compared with 22
percent in February and 25 percent at the beginning of 2009. During the worst
of the foreclosure crisis, in some of the hardest hit markets, investors had
made up more than half of all buyers.
Large funds like Colony Capital, Blackstone and Waypoint bought thousands of properties,
and drove prices higher, faster than most expected. Now they are focusing on
filling those houses with renters.
"What you're seeing in housing overall is a bit of a pause
as the market digests what's happening" said Colony's Justin Chang.
"We are in the early days of a long recovery."
Chang contends that buying has actually gotten more attractive
for larger firms because smaller investors are moving away from housing,
lessening the competition.
"We are moving ahead on all fronts," he added. Colony
postponed its initial public offering last spring after real estate investment
trusts (REITs) suffered on news that the Federal Reserve would begin tapering
its asset purchases. Interest rates rose just on the prospect.
Another large-scale investor, Aaron Edelheit, CEO of
Atlanta-based The American Home, has a different take on the slowdown in
"Last year, the amount of institutional investors activity
exploded. What you're seeing now is the natural digestion of that exponential
growth. That means maybe a slowdown in how many home they acquire, it may mean
letting go employees in areas where it doesn't make sense."
These investors are moving their focus from acquisition to
profitability, hoping to show Wall Street that the business model is not only
feasible but highly profitable. The American Home now boasts 2,500 homes in
Atlanta; Nashville, Tenn.; Orlando and Tampa, Fla.; and Charlotte, N.C.
Edelheit said rental demand is tremendous, and management is
working well, but the model is still too green for the larger investment
community. "You look at the stock prices of the companies that are public,
and it's pretty clear that Wall Street remains unconvinced in the single family
rental model, and I think it's natural for these firms to start right sizing
and make sure that they are profitable."
That could mean consolidation, with some of the larger firms
that have stronger management structures buying up smaller players. Large-scale
investors are still a relatively small segment of the 14 million single family
rental market, but it appears they are here to stay, despite the recent
volatility. Smaller investors, however, may be moving on, having exhausted
their cash and their credit opportunities.
Last spring, Redfin was running seminars for small
"armchair" investors on how to buy and manage single family rentals.
The classrooms were packed.
"There was a surge because people read the papers—in March,
April, there was a bull market in housing. Suddenly at every cocktail party
somebody wanted to make a killing in real estate," Kelman said. "Some
wanted to ride the wave, but some just caught it late."
—By CNBC's Diana Olick.
Author:Kim Guest Phone: 864-918-0066 Dated: August 27th 2013 Views: 360 About Kim: ...
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