It’s no secret that institutionalized funds have changed the
markets in the most areas that were hit hardest by the foreclosure crisis. The criticism is that they are taking
advantage of the system, profiting at the expense of the average buyer in the
John Husing, an economist specializing in
Inland Empire says, "They create the problem — and now they are taking
advantage of the problem." He also
says that the way they are creating a stream of rental income and transforming
it into securities is a dangerous game and structured very much the same way
that caused the mortgage bubble.
This argument of taking homes away from
regular home buyers, making the market more competitive and creating multiple
offers on homes, is a valid one, but currently there aren’t enough regular
buyers that can qualify for a loan. The
part that really upsets buyers is paying more due to the competitive
market. So the regular buyers don’t get
to take advantage of the prices a lot of investors have.
The largest reason for this is they are
late to the game. Had they bought 2 or 3
years ago, they would have had the same opportunity. In Southern California alone, the median
price has increased 21% in the last year.
The problem is more apparent in the
western markets. Demand is high,
acquisitions are more competitive and there is less inventory. Even investors are scrambling to find better
deals which are forcing investment firms to buy of the REO market which does
put them in direct competition with a regular home buyer.
Nick Halaris, co-founder of AH Capital, a
company that is well known for “fixing and flipping” foreclosed homes in South
Los Angeles, says it has caused “auction fever” on the west coast.
"I think it's crazy, their strategy,
especially in L.A. or major markets, because we have managed portfolios of
single-family rentals in different places.
The expense ratios are out of control, so I am not sure these plans are
going to pan out."
For private firms just jumping into the
game, like Invitation Homes, a sub group of Blackstone, it could be an issue of
can build a large enough portfolio?
Invitation homes only bought their first
distressed property last May and now have 200 homes in their portfolio. They are concentrating their efforts in the
San Fernando Valley area. Nothing
compared to Blackstone’s 20,000 homes.
Nonetheless, they feel like they are contributing back to these
communities, or as an article in the Chicago Tribune puts it; “These
firms say they've invented a new investment strategy that also serves the
public good by fueling the housing recovery and sprucing up homes.”
Mark Beisswanger, CEO of Invitation Homes
says, "We feel good about being able to fix up what is generally one of
the worst houses on the street."