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The "Institutional Investor" Housing Bubble Just Burst
It is by now well understood that the US housing market over the past year has not benefited from broad consumer participation, exhibited best by the unprecedented, 13 year low collapse in mortgage applications. And since bond yields which recently "soared" to 3.00% only to drop right back have not resulted in a spike in applicants for home mortgages, it is clear that the problem is far more broad and systemic and has to do more with affordability than any other aspect of the market. And yet one thing that did support the elevated, or as some call them, bubble prices, of US houses, was the bid from institutional investors: those "house flippers" who buy a home with the intent of either renting it out or selling it to a greater fool.
Alas, just like the rental bubble whose bursting we chronicled here just last week, so the institutional bubble has just popped, which we know courtesy of RealtyTrac data reporting that institutional investors — defined as entities purchasing at least 10 properties in a calendar year — accounted for 5.2 percent of all U.S. residential property sales in January, down from 7.9 percent in December and down from 8.2 percent in January 2013. This was the biggest one month plunge in history. It gets worse: the January share of institutional investor purchases represented the lowest monthly level since March 2012 — a 22-month low.
Some other RealtyTrac findings:
Metro areas with big drops in institutional investor share from a year ago included Cape Coral-Fort Myers Fla. (down 70 percent), Memphis, Tenn., (down 64 percent), Tucson, Ariz., (down 59 percent), Tampa, Fla., (down 48 percent), and Jacksonville, Fla., (down 21 percent).
Yet, unwilling to give up on this latest bubble craze, institutional investors are still hoping there is some last minute cash to be made in some remaining markets.
Counter to the national trend, 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share, including Atlanta (up 9 percent), Austin, Texas, (up 162 percent), Denver (up 21 percent), Cincinnati (up 83 percent), Dallas (up 30 percent), and Raleigh, N.C. (up 15 percent).
The rotation from one set of markets to another is shown on the chart below:
The following quote summarizes the situation best, and it also refutes the entire "harsh weather" excuse that has become so popular in recent months:
“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”
So with retail buyers long out, and cash buyers and institutional investors - which as readers know amount to about 60% of all purchases - on their way out, just what will be the next myth be that will be disseminated to percent the general public from realizing that the artificial housing market "recovery", which was entirely driven by hot money, speculation, and hope of a quick profit? Because with QE also fading, and with it the MBS bid, not to mention the surge in foreclosure exits and the flood of foreclosed properties about to hit the market as we wrote yesterday, things for the US housing market are about to get very messy.
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bullish.....
Silly Tyler!
Smaller Institutional Investor Percentage = Larger Individual Home Buyer Percentage.
Bullish Indeed!!!!!
#spinning
My psychiatrist just shot his load.
It's time to apply the seasonal adjustment, Bitchez!
I have a friend that is an Art graduate that used to live in Section 8. He is ghetto but white and doesn't really have anything which was fine for him. Recently his big step was getting an iPhone... He sent out a message on Facebook today that he is now working for a "wholesale real estate investment firm". WTF???
so he works at ACORN? get some new friends
SPY next stop 1900... Wow
I just accepted an offer on my Mom's old house this evening. $40 grand under already-reasonable ask, but after 8 months of nothing, nothing, nothing... It's finally done. I just tanked all the neighbors' real estate appraisals (the PAPER value of their homes), but I don't care. No way I'm spending another 6 months trying to get an extra $10K for the place just to end up in the same spot anyway as the overall market goes pear-shaped again.
Out of the HUNDREDS of units in the complex, a handfull of which are for sale at any given time, NONE have changed hands since last July. ZERO. This will be the first sale since last July.
100% of the potential buyers throughout this 8 month ordeal were "investors". Not a single person expressed an interest in the place who planned to live there themselves. However, none were "big" institutional investors, like those in the article. Just dink-and-dunk little "sheep" investors, who I think follow the herd.
If the investor-buyers are pulling back, you can be assured this WILL affect the price of homes. Maybe not big mansions which are viewed as another "investment asset class" for the well-off, but definitely at the "regular guy" house level.
That would be true if individual apps were not down to 1995 levels. I fund 100M in residential Loans per year and this article is spot on. Individuals cannot afford the home now that the value is artificially high, rates are higher... meanwhile salaries are flat.
Exactly...household incomes must go up fast or the NINJA-type loans must return with a vengence. Pretty simple scenario.
RE investment funds must have discovered you can't raise rents when wages are stagnant.
I wonder if the origanal rental revenue increase projections match today's reality.
Excuse me sir, you seem to have misplaced my Grey Poupon.
No seriously: Everyone from Zell to Fink have said the home trade of rebuindling default homes to make retail home REITS is done. Show's over, go home. REITS are going to get monkey hammered by both rates rising, purchasing power falling and staggering retail/entry-level job adds for the all important summer student & seasonal job hires.
Not a trade, just an observation. Tyler_1 is correct in pointing this out.
Yeah, all the deep-in-debt college grads creeping out from the parents' basements.
Here's an amalgation post of two posts I made on one of the contributor's blogs nearly identical posts.
On why there is less institutional investor activity: In many markets there are vast cost differences in renting or owning a house (i.e it is cheaper to own then to rent). While these periods don't last forever, i.e the real reason institutional investment is slowing down is not because they don't want to own RE but rather that there has been huge cap rate compression over the past year. Most companies won't accept properties with net yields below 4%, which is in my opinion even cutting much too low. Last year in Atlanta you could buy relatively new properties with net cap rates in the 8% to 10% range in the not so great but ok areas and 5-6% for properties in nice areas. The price appreciation experienced in these markets have made it so that it is much harder to find quality product that generates good yield. Plus, most market players knew that last year was going to be the last really large gain. Prices will probably appreciate a bit in most markets this year but by next year it will likely taper off significantly.
Without the expected upside in addition to the rental yields, the returns on properties are not that attractive for the big guys.
On the insane Blackstone Securitization:
The part that I find absolutely shocking about the Blackstone Securitization is how retardedly low of an interest rate they managed to get investors to accept for the paper. I recall reading that the highest rated tranche was 1.8% and the lowest rated tranche was like 3.8%. Seeing as though for mid level/starter homes which most investment groups have flocked to (other than the super large players which can get funding so cheaply that cap rates are almost meaningless) have net yields of 5% to 10% (obviously very market and sub market dependent) Blackstone is getting ridiculously low funding costs without putting their true collaterall at risk and making a spread as well. The underlying homes are probably leveraged at ridiculously low rates which companies like Blackstone can get which in essence this securitization is allowing them leverage these properties twice at low interest rates.
Blackstone got in very early so they acquired many properties with very strong cap rates (although from what I have seen they have also massively over paid for some homes, but knew that it didn't matter because their funding costs and other factors of scale made overpaying less important than deploying the capital). Say in the Atlanta area in B and C type areas they are getting Net returns of 7% to 10%, I don't have knowledge of their cost of capital but I would assume it's something stupid low, like probably sub 2-3% which they leverage the homes up to at least 60% and potentially up to 80% ltv. They then get this second round of funding backed only by the cashflows from the properties at super low rates of 1.8% to 3.8%. They obviously use the leverage to acquire more properties providing more cash flow. And they repeat the game and increase cashflows further.
Here's an example laid out of how ridiculously profitable this can be for Blackstone. So they start with a house lets pretend its $100,000 with a net annual return of 10%. They get $60,000 at lets say 3% which is a high interest rate low LTV example. They then do this securitization and say they get 40% of the homes value paying 3.8% (I didn't do the math on what the value of the underlying homes was vs the capital raised so this number could be off). They have acquired a home for $100,000 providing them $10,000 in profit per year which they must pay 6800 of for debt service (assuming absolute maximum interest rates they could be paying) and have another $100,000 to invest. Let's say that because of the time involved in the leveraging etc, cap rates have compressed, their $100,000 used to buy a new house only returns $9000 in net profit. Well they used $100,000 in capital and now have $200,000 worth of collateral and have a net income of $12,200 off the original. Assuming RE prices stay flat or increase they do amazing, and the cap rate itself can be great given the currently repressed interest rate levels. The thing is though, they repeat the leveraging process with each new home acquired so they are getting more and more assets and gaining more of a spread on their debt service expenses and cash flow from the properties.
My company wishes it could get financing using our properties as collateral that blackstone is getting merely securitizing their income. Its crazy.
Down is up.
bullishit
I am bullish too...
I better unload while I can.
Tom Vu and his babes will not be happy to hear this.Tom Vu...I can't believe how much I learn on the Hedge
"Tom Vu wife no care Tom Vu surrounded by grade-A jugs all day, 'cause she gold digger too."
Now I ain't sayin' she's a gold digger
But she ain't messin' with no broke Asian pimp flipper
Is that the same guy that sez, "Can you feel yourself getting rich already !"
Tom Vu.
God I haven't heard this guy's name in aeons.
"If you don't come to my seminar...you deserve to be broke! Here's the location!"
Then there's Don LaPre, who eneded up dead in jail after everything for him went utterly shithouse when the bubble burst on placing "tiny classified ads".
He clearly used the same production crew that McCorkle<sp> did.
he was a former male stripper who created some "plan" he spent time on boats with bikini babes too.
now he's somebody's bitch in prison for fraud.
And stocks railly on.
fuck this bullshit.
I want to see more bankers testing newtons theory
It's the Yellen initiation bounce. I expected a larger one as this was the one day this week I was truly fearing.
Based on her lack of true market skyrocketing JawBone skills, color me unimpressed. She even had a massive assist from Chuck "Get To Work Undoing The Taper" Schumer and couldn't really convert.
No sweat. It's out of breath & breadth.
THIS DOES worry me, though - JIVE SOFTWARE & TWATTER working on SECRET PLANS! (/sarc):
02-27 15:42: Market talk Jive Software (JIVE) and Twitter (TWTR) could be secretly...
News Headline Summary Market talk Jive Software (JIVE) and Twitter (TWTR) could be secretly developing integrated business solution - UnconfirmedTotal fails in physics become bankers - that would explain many things.
...again...?
Soon many investors will need to be institutionalized. What's that? All the psych wards were shuttered during the sequester? Uh-oh...
Off topic - I believe the "Saddle Ridge Hoard" was hidden to avoid FDR's gold coin theft (executive order).
Nice gold coins ... nice boating accident!
Interesting thought, but since there newest coins are from 1894, and they were stacked in near chronological order, I'd say it was merely a private bank for a successful entrepreneur.
Maybe this one?
http://mashable.com/2014/02/26/saddle-ridge-gold-coins-stolen-1898/
Lesson learned, if you find buried gold coins then STFU about it.
They figured out that there is more money in just buying every down-tick of the ES.
an entire generation of people lived their entire adult lives with the notion that houses and stocks always go up in the long run. that idea will die along with their portfolios in the end.
Most boomers until 2000 lived it for real. And enough so that many made out like bandits. The tail end of the boomers got caught with thier pants down. Gen X and everyone after is living in a different world.
Most Boomers lived leveraged to the max and didn't and don't have a pot to piss in. They sure looked good, for a while.
Depends on timing. I know quite a few early boomers that cashed out before or around 2000. They really benefitted. Especially those who really rode the markets hard.
My dad, on the other hand, was leveraged. Had the economy complied, he would have managed to ride the wave right off into the sunset like a champ. Instead, he has had to downsize and radically alter his retirement plans. Missed the optimum timing window by about 10 years.
Yes, that sums it up nicely where I am. Unfortunately for us we did not go on a spending binge or go into debt and are still screwed none the less. No way we could have known what was going to happen and are just trying to survive this at this point.
Miffed:-)
I used to really want to kick myself for not following my gut instincts over the last 20 years. Now that I know more about what has really transpired I have been able to lighten up on myself. Instead, I can now look outward - pissed off (but not surprised) about what is really going on!
Boomers here, born in '56. We worked 60 hour weeks building homes and employed dozens over the years. We paid off our house, college for the kids, and owe nothing. We saved for retirement and planned to work until 62 and live on it. Thanks to the thieves in banking and government the possibility to continue our business was ruined. Now we supplement retirement with menial jobs, living off it and hope to have enough. Never took a dime from anyone, especially not government, paid in plenty in taxes and the ponzi. Didn't count on SS but will need it now.
All we wanted was to work hard to live out retirement in security. Screw all the corrupt officials. May they know the same uncerainty we do.
'62 for me and brother I could be wearing your shoes.
Good luck my friend.
Re: corrupt officials - Unless hell or karma are real, they almost all got away with it.
Not trying to be mean. You did all the right things. Just asking for perspective. Those behind you have progressively been screwed more.
56' - yeah, you missed the boat. But, you had a good run up. A chance to pay off a house. To put kids through college. And be debt free.
I have done all the right things too (by similar definition). I still have a mortgage with a handful of years to go. My kids are not yet in college - and the prices have gone nuts of course. My prospect of any sort of retirement is nil it seems. AND, I am likely in the 15% or better in the US. lol. What does that say?
Sharing your sentiments here about the officials!
Re: houses and stocks always go up in the long run.
as measured in dollars.
As long as people use dollars and the Fed keeps making more and more of them, housing and stock prices must go up.
yeah. Otherwise known as diluting available collateral. The FED can change what things look like..........but.....y'all know the rest.
have to disagree. when rates were falling and wages rising this held true. if wages and rates hold flat housing cannot climb for long and if wages, stocks, and bonds all fall then housing will go with it. Look at Japan. Real estate fell for decades even with the yen getting weaker and rates at zero.
As long as the government and Fed prop up the banks they can leave defaults on the books and prices hold. Not much being built in most areas, just in certain pockets.
this is an interesting discussion. A how far CAN the fedres and fedgub go down the path v. how far WILL they go. I believe that the fedres will eventually buy the entire t-bond market, the bonds that failed that are held by agencies and banks, perhaps even the stock market. will they go all the way and buy the entire housing market and turn the country into serf city usa with homeless, poverty, 99% rentier status and all the rest? In the latter case they actually could fix real estate prices wherever they want and give the best bits to their friends the billionaires. Will they? Twenty years ago I would have said no way in hell, now, i'm not so sure anymore. Thank god for local property taxes or they would have done it long ago.
I had this discussion just last week with an old friend in Las Vegas who stated the desire to sell eerything and just move around as the mood struck. I insisted that wouldn't be wise because I believe rents will rise as we work our way through this. In other words I think what you fear will happen.
But the market's are all green and there's a front page article in the WSJ about how wunderbar the new housing starts and a 'robust' sign of forward demand.
And if I troll around the various finac/agit prop website I could round a dozen stories today about how the housing market is stabilized and growing again.
To think your house - the one your lived in (before the divorce) - was once your primary asset and protection.
Great housing deals in Toronto, Ont.
For $700,000+ you can get a semi-detached. Thats it...the end.
.
However, you cant move in right away because you need to spend $50,000 -100,000 to remove the asbestos and/or fix the crack in the foundation and/or upgrade the 1950's cabinets/wallpaper/washroom.
The good news is that the TTC (transit) has a bus stop right close by. 'Oh, you have a car?' - Sorry, the place doesnt have a garage or parking spot.
Just as an example (mls.ca) realtor page:
http://www.realtor.ca/PropertySearch.aspx?SearchStatus=1&&vs=Residential...
.
City:Toronto. Price $ range from $1,000,000 to unlimited
=
'Your search returned more than 500 results, please refine your search criteria.'
Is it lots of Chinese money showing up in Toronto?
This week on property brothers, a Toronto couple spends $330,000 on a glorified dry wall installation!
Sigma...i would say yes. Even more so in Vancouver where the house prices are even higher.
.
Park...exactly.lol. Ive watched a few episodes here and there of those guys with the gf and its unreal. Pb, 'Oh, your budget is $850K? No probs, we can get it all done for you if we can get the house for $750,000 and that way we have $100K for reno's.'
Is there plenty of that kind of work there? We could use it.
oups ther go's another leg, now all thats left is the dwindaling suckers pools and the strawmen.
Bullish! everything is bullish ahs been bullish and will forever be bullish. Thats all anyone needs to know. Who the fuck spiked the market in the last 5 minutes?
New hires for the fed was tickling Yellens saggy cunt and caused finger twitches.
Brother saint, That image truly, truly sickens me.
bernanke is out so is his RE pumping schemes, yellen will not continue this madness , good for her and us.
With Mak to fantasy they will never admit to any losses.
If RE craters again no one is going to buy for another decade. Two cycles of buyers burned in ten years.
Those are all retiree states.... Always the first to go due to known income. Most indicies have peaked. We are now heading for the next recession... Though official numbers Wong pick it up for another year.....yes yes
I know we never really recovered from the last one.
Socal: where you can park your 75k Range Rover front of your 750k cracker jack box! Life is wonderful! Untill its not.
Then you get to live in your 75k rover (assuming it doesn't get repo'd first.
Going as planned by the central banks. Housing prices must drop further so the over lords can grab real estate for pennies on the dollar. Same song as the great depression with likely the same overlords. I am starting to think these mother fuckers are immortal.
Why... its almost like a larger slower moving version of the Gold smack-down. Shake out all the weak hands (lowly retail subprime) and BTFD.
"Housing prices must drop further so the over lords can grab real estate for pennies on the dollar"
Yeah that would be horrible if regular Joes could buy decent houses in nice areas for affordable prices instead of being chained to 30 year mortgages they can barely afford for overpriced, depreciating shit shacks.
Regular Joe won't have a job. Get it now?
Instead keep prices high so the buyers who do have jobs will keep funding the banker bonuses and enable the local governments to keep spending via property taxes. That's a good idea, drain all you can from the working people. Oh yeah and keep the prices up to keep your local realtards happy.
I get it - more for bankers, mortgage brokers, realtards and local government.
Don't worry. Wells Fargo is back on the job!
Where's Carlton Sheets?
In Detroit, or was it Rome...
Need more Chinese fascists to steal from their citizens and bring it state side!!!
USA calling all PROC Fascist Pigs: "Me have special visa for you :)))!"
We are the defenders of freedom in the world? Pathetic....
The Fed keeps trying to reinflate the collapsing housing bubble b ytrying to keep interest rates low. Just read yesterday that the FHA has lowered the qualifying credit score to 600 for low income applicants. But bubbles of all kinds always end badly.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
My sales figures do not support this story.
My purchases ... or the lack there of ... do.
Prices have risen to above their economic value.
But ... I bet that changes as prices come down.
What about Robocop Town, aka Detroit? Aren't they Up?
I mean if you can get a half decent house for $35k, then it can only go up, right?
next meme, Chinese, and then Brazilians, then Andorans, then Ethiopians, and then ....
They have gone from buying properties to just buying the notes.
http://www.bloomberg.com/news/print/2014-02-21/wall-street-landlords-buy...
the reality is it still costs $500K to buy a starter home in OC
That Austin number has to be an anomaly (or error). Texas is a non-judicial foreclosure state so any distressed product would have moved through the system there long ago, peak to trough price differential isn't that dramatic and its economy has been relatively resilient so doesn't sound to like fertile ground for those guys. Taxes are also pretty hefty.
prices need to drop to 3-4x average income... Blackrock mbs is FED plea so it could continue to Print and Print.... Usury debt slaves.. Unless prices and equivalent rents drop by a large amount homeless usury debt slaves.... Don't worry Ukraine taking bids and receiving billions from usury debt printers for endless slave usury payments.
USA USA USA!
ps. Moodys upgraded 2004-2005 ABX 's the FHA lowered FICO... so the 8c abx's put on FED collateral table for 85C Print print print..... education/military/medical/usury cabal have great FICO score...
USA USA USA
Batten down the hatches! It's gonna be a big one!
I have owned an apartment complex for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in the area are empty or under leased. In 2005 and 2006 prior to the housing collapse many people were looking at second homes, for investments or as a vacation getaway.
Today not only have many people shed the extra home many have doubled up with family or friends reducing the need for housing. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. More on how low interest rates are hurting housing in the article below,
http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservi...