Two separate articles on Zero Hedge today that reach the same conclusion I reached in my Best Time to Buy article. Wall Street created the first housing bubble through fraud, propaganda, and the Federal Reserve keeping interest rates too low while not doing their job of regulating the banks. Now they are doing it again. These Ivy League MBA egomaniacs think they are smarter than the rest of us, but they are nothing but greedy lemmings. These crony capitalists are buying up foreclosures by the thousands with the free money provided by sugar daddy Bernanke and attempting to rent them out until they can flip them to clueless dupes at a much higher price. These slimeballs have driven prices up in the formerly hot bubble markets and are driving rents lower with oversupply. Their little excel spreadsheet models weren’t anticipating the lemming like behavior of their fellow Ivy Leaguers. These Wall Street shysters don’t know how to be a landlord. They only know how to screw muppets and pay themselves massive bonuses. The combination of high vacancy rates, dropping rents, rising mortgage rates, and depletion of dupes and suckers will tell their models to sell. The lemmings will all come to the same conclusion at the same time. Wall Street douchebag MBAs are predictable.
Housing Bubble II: But This Time It’s Different
Submitted by testosteronepit on 03/19/2013 13:20 -0400
We have seen it for several years now: foreclosure sales—there were 5 million since the peak of the housing bubble—have become the hunting grounds for investors with two goals: hanging on to these homes until the Fed’s flood of money drives up their value; and defraying the expenses of ownership by renting them out. And funds have a third goal: collecting management fees. Thousands of smaller investors have piled into the game. And so have the giants.
Blackstone Group LP, the world’s largest private equity firm, plowed over $3.5 billion into the housing market, according to Bloomberg, to gobble up 20,000 vacant and foreclosed single-family homes. It just fattened up a credit line to $2.1 billion to do more of the same. Colony Capital LLC, which already owns 7,000, is putting $2.2 billion to work.
Last year, institutional investors made up 19% of all sales in Las Vegas, 21% in Charlotte, 23% in Phoenix, and 30% in Miami. It had an impact. In the latest Case-Shiller report—a three-month moving average for October, November, and December—home values soared 9.9% in Atlanta, a bigger jump than even during the peak of the housing bubble. Las Vegas popped 12.9%, and Phoenix 23%. It’s getting hotter. In February, compared to prior year, asking prices jumped 14% in Atlanta, 18% in Las Vegas, and 25% Phoenix. Seen from another point of view: in January, the median price of a single-family home in Phoenix skyrocketed 35%.
“We recognized that prices were moving faster than people expected,” explained Devin Peterson, a Blackstone real estate associate, to Bloomberg. Despite that, they’re still “finding opportunities to buy.” They might not be able to rent them out very quickly, but they’d rather not be “missing out on a few points in home price appreciation.” The race to buy is on. The next housing bubble is inflating.
And that’s great. Money—which the Fed hands to its cronies at the frenetic pace of $85 billion a month—magically finds places to go and drives up values, and transactions take place, and paper gets shuffled around, and homes change hands as banks get out from under them, and fees and commissions change hands too. It inflates GDP, which is what everyone wants. And Chairman Bernanke can contort his arm slapping himself on the back.
Trying to rent these places is another story. Housing is zero-sum: when you move into a new place, you move out of the old place at the same time. So it becomes available. And someone else goes through the same process. Only household formation solves the problem of vacant homes—but that takes years or decades.
Best of all, these formerly foreclosed homes have now been pulled off the for-sale inventory list. Hence the “tight” inventory. And they’ve been transferred to the for-rent inventory list where they don’t bother anyone. Except the owners. Colony Capital, for example, with its 7,000 homes, has an occupancy rate of 53%.
Suddenly, the market for single-family rental homes—unlike apartments, which cater to different people—has turned into an elbow-to-elbow affair. The pressure on rents is huge. Year-over-year, rents edged up only 0.5% in Atlanta and dropped 1.7% in Las Vegas. For Phoenix, Bloomberg cited Fletcher Wilcox, a real estate analyst at Grand Canyon Title Agency: median rent per square foot rose 3% year-over-year in February 2011, and 1.5% in February 2012. But in February 2013, it fell 3%.
This tendency was confirmed by others. On the west side of Phoenix, where investors have concentrated their purchases of single-family homes, rents dropped by $100 a month last year—a stunning 10%!—according to James Breitenstein, CEO of Landsmith which has dumped most of its Phoenix properties. He is seeing similar pressures in Las Vegas and Atlanta. “There’s a whole bunch of rental supply that’s coming on that used to be sitting empty in bank portfolios,” he said.
Timing couldn’t be worse. Occupancy rates of single-family rental homes are already low— 53% for Colony Capital. But investors are buying ever more properties and flood the rental market with them. Just when the stream of people who’ve gotten kicked out of their foreclosed homes is tapering off. With rising costs and declining revenues, the rental part of the business model collapses.
As the Fed’s money is trying to find a place to go, prices may continue to rise. But with the economics to support these prices—namely rental revenues—giving way, the remaining reason to buy would be a singular hope: economically unsustainable price appreciation. The definition of a bubble. At some point, not being able to make money on rentals, investors will try to bail out. Then, the process of a Fed-inspired housing bubble blowing up starts all over again.
Dallas Fed President Richard Fisher often warned about the nefarious effects of this flood of money. But he was shuffled off to “an out-of-the-way ballroom” at the CPAC, where Republicans struggled with the future, and drew barely two dozen people; yet he had a pungent message. Read…. The Fed’s Token Voice Of Reason: Megabanks Undermine Americans’ Faith In Democracy.
Is The “Buy to Rent” Party Over?
Submitted by Tyler Durden on 03/18/2013 21:10 -0400
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
For well over a year now, I have been writing about how this whole “buy to rent” investment strategy is one of the biggest disasters waiting to happen within the U.S. economy. I have repeatedly noted that these private equity clowns were crowding into these markets with reckless abandon and that this would ultimately crush their business model as there’s no way rents can rise enough to keep yields attractive in a country where most people are struggling to meet their daily expenses. Well it seems the day of reckoning may be at hand. From Bloomberg:
Rents for single-family homes are rising slower than property prices as firms such asBlackstone Group LP (BX) flood the market with homes for lease, posing risks to investors betting billions on the burgeoning market.
Monthly payments for properties in Phoenix rose 1.3 percent in February from a year earlier, compared with a 25 percent jump in for-sale asking prices, according to Trulia Inc. (TRLA), which operates an online listing service. In Atlanta, asking prices climbed 14 percent as single family rents gained 0.5 percent, and in Las Vegas rents dropped 1.7 percent even as asking prices soared 18 percent.
Seems like a fantastic business model…
“Investors are buying homes, in part, to rent them out, and that has added a lot of rental supply, and that’s preventing rents from rising,” Jed Kolko, San Francisco-based Trulia’s chief economist, said in a telephone interview. “It means some investors will start to think about selling those single-family rentals.”
“They’re effectively pushing prices up on each other,” Chang, a former Morgan Stanley housing analyst, said in a telephone interview.
Tina Africk, a Las Vegas broker who manages 60 single- family home rentals, said houses that might have rented in 30 days in the past can now take 60 to 90 days to fill, while rents have dropped about $100 a month from a year ago.
“What we’re seeing is a game of musical chairs,” Wilcox said. “People lose homes to foreclosure and then rent a single-family home from an investor while another investor buys the foreclosure they just left.”
That folks is the U.S. economy in 2013.
Orr estimated that large investors bought 8 percent of the Phoenix-area homes sold last year, peaking in July and August before tapering off as prices rose. Purchases by all investors dropped to almost 32 percent of transactions in January from more than 39 percent a year earlier, he said.
So the almost half the housing market in Phoenix consisted of investors. Sorry, that’s downright terrifying.
“One of the risks is prices run up and therefore the rental economics don’t justify the business model,” Rahmani, who has an outperform rating on Silver Bay and Colony, the equivalent of a buy recommendation, said in a telephone interview from New York. “The problem could be that you would have assets that are up a lot in value, which isn’t the worst thing in the world. The risk would be that everybody goes to sell at the same time.”
No Rahmani, all you need is for prices to rise to the point the entire business model is dead and then people stop buying. You don’t even need to see rampant selling. If the buying dries up, the housing market will totally crash once again.
Monthly leases in Phoenix’s west side, where investors bought the most rentals, fell by about $100 a month, or 10 percent, in 2012, said James Breitenstein, CEO of Landsmith, a San Francisco-based single-family rental firm that sold most of its 250 Phoenix rental houses last year.
“There are a lot of properties out there, so the competition to get your property rented is fierce,” Svoboda said. “Tenants are very savvy. If you’re overpriced by $25, they’ll let you know and go to another one around the corner.”
Full article here.