A bidding war broke out this winter in a new subdivision north of Houston. But the prize this time was the entire housing estate, not just a single suburban home, illustrating the rise of big investors as a powerful new force in the US housing market.
DR Horton Inc.
built 124 homes in Conroe, TX, rented them out and then put the whole community, Amber Pines to Fosters Ridge, on the block. A Who’s Who of investors and home rental companies flocked to the December sale. The winning bid of $ 32 million came from an online real estate investment platform, Fundrise LLC, which manages more than $ 1 billion on behalf of approximately 150,000 people.
The nation’s most prolific homebuilder has set aside about double what it typically does by selling homes to the middle class, an encouraging start in selling entire neighborhoods to investors.
“We certainly wouldn’t expect every single-family community we sell to sell at a gross margin of 50%,” the builder’s chief financial officer, Bill Wheat, said at a recent investor conference.
From individuals with smartphones and a few thousand dollars to pensions and private equity firms with billions, yield-seeking investors are scrambling for single-family homes to rent or flip. They compete for homes with ordinary Americans, who are armed with the cheapest mortgage financing ever, and drive home prices up.
“You now have permanent capital in competition with a young couple trying to buy a house,” said John Burns, whose eponymous real estate consultancy estimates that in many of the country’s major markets, about a in every fifth house sold is bought by someone who never moves in. “It’s going to make housing in the United States permanently more expensive,” he said.
The consulting firm found Houston to be the place of choice for investors, who recently accounted for 24% of home purchases there. Investor share in the housing market is growing, as it is in other booming cities, such as Miami, Phoenix and Las Vegas, among properties priced below $ 300,000 and in decent school districts.
“The limited supply of housing, low rates, a global reach for yield and what we call the institutionalization of real estate investors have paved the way for another speculative investor-induced house price bubble,” concluded the society.
The bubble has room to develop before it bursts, according to John Burns Real Estate Consulting. But it swells quickly. The company expects home prices to climb 12% this year – on top of the 11% increase last year – and rise by at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005.
This boom was different, fueled by loose loans that allowed individuals to speculate on house prices by racking up mortgages that they could only pay off if house prices continued to climb. The money party ended a few years later when house prices stopped rising. The subsequent crash wiped out $ 11 trillion in US household wealth and brought the global financial system to the brink of collapse.
Financiers stepped in from 2011 and swallowed up foreclosed homes with significant discounts. They sent buyers up for auction in courthouses with duffel bags of silver. Smartphones and tablets, new at the time, allowed them to orchestrate land grabbing and subsequently manage tens of thousands of remote properties.
They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for lower prices. There wasn’t a lot of competition. Stung by losses, banks have made it harder for regular homebuyers to get a mortgage. Millions of Americans were under water, owed more on their mortgages than their homes were worth, and unable to move.
Home rental companies, including Invitation Homes Inc.
and American Homes 4 Rent,
prosperous. Renting out suburban homes has proven to be so profitable that homeowners hit the open market and added heavily priced properties after foreclosures ended. Many are now building houses explicitly for rent.
The coronavirus pandemic has sparked a race for home offices and classes. Occupancy rates are at record highs and rents are rising with house prices. The ecosystem of businesses that serve, finance, and emulate mega-owners is booming.
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Burns has counted more than 200 companies and investment firms in the house hunting: computer-aided pinball machine Opendoor Technologies Inc.,
fund managers including JP Morgan Asset Management and BlackRock Inc.,
platforms such as Fundrise and Roofstock which buy and organize rental management on behalf of individuals and the builder LGI Homes Inc.,
which now reports wholesale home sales to wholesale buyers in its quarterly results.
Spring brought a new rush of buyers.
PCCP LLC, which typically invests in apartment buildings and office towers, said it purchased rental housing communities in the Southeast, the start of a $ 1 billion pact with Calstrs, the system of California’s $ 286.9 billion teacher pension.
Lennar House Builder Corp.
announced a leasing business with investment firms including Centerbridge Partners LP and Allianz ALIZY 0.65%
SE to which it and potentially other builders will supply over $ 4 billion worth of homes.
Madison Realty Capital has switched to leasing with clients who previously focused on developing owner-occupied apartment and subdivision buildings. On Thursday, he closed a $ 110 million loan on a project in Los Angeles, where 220 of the nearly 700 home sites are sold to investors. The initial plans, derailed by the real estate crash, did not contemplate any rentals.
“A lot of things that would have been homes for sale are going to be homes for rent,” said Josh Zegen, general manager of Madison.
Bruce McNeilage began building rental homes around Nashville, Tenn., In 2005. After the real estate crash, his Kinloch partners expanded to other Southeast markets, returning occupied rentals to larger investors. .
Kinloch was funded primarily by community banks in towns where he rehabilitated foreclosures and built rentals. These days Kinloch can borrow much more from Walker & Dunlop Inc.,
a commercial real estate lender forging in suburban rentals. Mr. McNeilage’s problem is that others are bidding on houses and lots.
“I am locked up,” he said. “There are too many people chasing things and they are willing to pay too much. It’s silly money right now.
Write to Ryan Dezember at [email protected]
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