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Rental investors pant for next hot home market
PHOENIX, Ariz. – Jan. 22, 2013 – Major real estate investors are buying fewer homes in some hot markets while expanding in others as they race against rising prices to turn more distressed homes into rentals.
Phoenix, which has led the nation with rapid home-price gains, is among the first markets to see investors’ interest cool.
The percentage of Phoenix homes bought by investors fell to 28 percent in November after cresting at almost 36 percent in August and is now on a “clear downward” trend, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.
Investor interest also may be close to “peaking” in some California markets where prices have risen rapidly, because higher acquisition prices cut financial returns, says John Burns, CEO of Burns Real Estate Consulting.
Meanwhile, major investors are stepping up purchases elsewhere, especially in Southeastern cities such as Atlanta and Tampa. Home shoppers there are now seeing the multiple offers, bidding wars and shrinking supplies of homes for sale that occurred in Phoenix as investors swooped in.
“The Phoenix-like phenomenon has migrated to other markets,” says Sam Khater, economist for CoreLogic. It says Phoenix home prices were up 24 percent in November year-over-year, vs. 7.4 percent for the nation.
Major institutional investors are amassing a $10 billion war chest to pursue the single-family rental market, JPMorgan Chase estimated in a recent research report.
They’re betting that they can get distressed homes on the cheap, fix them up and rent them out, often to families who lost homes to foreclosure, and make money on home price appreciation in a few years.
The companies generally seek three-bedroom, two-bath homes in the $100,000 to $125,000 range that can rent for more than $1,000 a month, analysts say.
With $10 billion to spend, that would roughly equate to 80,000 homes, although the investment funds continue to raise money, says JPMorgan analyst Anthony Paolone. Nationwide, there are currently 12 million single-family rentals, most owned by mom-and-pop investors, Paolone says.
The Blackstone Group, for one, has spent $2.5 billion since early last year buying 16,000 homes. It’s now adding 2,500 homes a month, it says. It’s believed to be the biggest player in the group, but most are private, so information is limited.
Colony Capital expects to invest up to $150 million a month this year to acquire single-family rentals. It bought 5,000 homes last year, it says.
Waypoint Homes, one of the market’s pioneers, expects to own 10,000 homes by year’s end. It started four years ago in the San Francisco Bay Area and owns 3,300 homes, says managing director Doug Brien.
Like many of the big investors, Blackstone started investing in Phoenix.
It next moved into California, then Atlanta, Tampa, Orlando, Chicago, Las Vegas and Charlotte.
Blackstone has accelerated its buying because home prices have risen faster than it expected, says Jonathan Gray, Blackstone’s head of real estate. In some markets, the window to buy before prices rise too much “is closing faster” than in others, he says.
Colony, for instance, has slowed purchases in Phoenix. Consultant Burns says Atlanta may be the hottest investor market now. Local real estate experts are seeing the impact.
Investors “are a significant force in the market right now,” says Mike Prewett, president of Southern REO Associates in Atlanta.
Prewett estimates that investors are buying 40 percent of foreclosed homes in the Atlanta area, triple the level of a year ago. Almost all foreclosures for sale draw multiple offers, often 10 or more, Prewett says.
Tampa, too, has seen an uptick, Realtors say.
A year ago, $125,000 homes in foreclosure could have been purchased “all day long,” says Brad Monroe, managing broker for Prudential Tropical Realty in Tampa. “Now, there’s 16 offers on each one of them within two days,” many from cash-paying investors.
Tampa’s inventory of homes for sale in December stood at 3.3 months, based on the pace of sales. That was about half its level of a year earlier, data from the Greater Tampa Association of Realtors show. Generally, a six-month supply is considered a balanced market between buyers and sellers.
Atlanta’s November home prices were up almost 5 percent from a year ago. Tampa posted a similar gain, CoreLogic says.
Lure of deep slumps
Institutional investors have largely circled cities that were hardest hit by the real estate downturn that started in 2006.
In Phoenix, home prices fell almost 60 percent from their pre-bust peak before they started to recover. Las Vegas posted a similar drop. Tampa dropped almost 50 percent.
The markets have more going for them than just cheap home prices. Phoenix, Tampa, Atlanta and Las Vegas – all markets where investor buyers are busy – have seen positive year-over-year job growth since July 2011. That will help drive housing demand, JPMorgan says.
The first task for investors is to buy at the right price. In many hard-hit markets, prices have bounced faster than anyone anticipated even a year ago. That’s made good buys harder to find, says Rick Sharga, executive vice president at Carrington Mortgage Holdings.
In recent months, Carrington has slowed its buying in single-family rentals, Sharga says. “As prices go up, it gets harder for investors to get the returns they’re looking for.”
In his report, analyst Paolone also warned that too many investors shopping in the same areas will drive prices up and eat into rental returns.
Burns says that’s already happening in some places. Single-family rentals that returned 10 percent annually three years ago may now be running closer to 6 percent. That’s too low for some investors, he says.
Nationwide, investors purchased 19 percent of homes in November, the National Association of Realtors says, down from 23 percent of sales in January and February of last year.
NAR economist Lawrence Yun says the percentage of homes being purchased by investors might decline more this year as regular home buyers make up more of the market, assuming a continued economic recovery.
Burns’ data show investors accounting for much higher levels of total home sales in some cities. It also shows a leveling off or decline in recent months in the share of homes bought by investors in a variety of markets, including Tucson; Oakland; Tacoma, Wash.; Minneapolis; Washington, D.C.; and Durham, N.C.
Burns also says a peak may be near for Sacramento and Riverside. Both California cities have seen home prices rise faster than the national average, CoreLogic data show.
In November, Sacramento prices were up almost 13 percent year-over-year. Riverside’s were up 10 percent.
Tight inventories will also slow investors, Burns says.
In Sacramento, the inventory of homes for sale fell to 1.6 months in December, based on the pace of sales, the California Association of Realtors says.
“These guys (investors) have bought up everything that’s worth buying in many of the hardest-hit markets,” Burns says.
The value of good timing
Even if investors slow purchases in a city, they may circle back around, says Waypoint’s Brien.
Waypoint was late to get to Phoenix, starting purchases there only last year. But as competitors have slowed buying there, Waypoint has seen “a little bit better buying opportunity,” Brien says.
He expects the same thing to happen elsewhere. Investors will pull back when prices rise too fast, then return when price gains slow, as more people list homes for sale.
“There’s a lot to buy and a lot to buy attractively,” says Justin Chang, Colony Capital principal.
While investor buyers have helped prop up prices, they’re making it tougher for regular home shoppers to compete.
Tom and Cyndi Vander Ven have been shopping for a home in Atlanta since September. The retired couple, both teachers, want to downsize.
They’ve lost out on three bids so far, even though they offered more than the asking price. Their Realtor told them investors had outbid them, Tom Vander Ven says.
They would have made more offers by now, but other homes they see listed are sold “before we can even move on them,” he says.
Copyright © 2012 USA TODAY, a division of Gannett Co. Inc., Julie Schmit
The average season sees 12 named storms, including six hurricanes, three major.
The climatologists expect the tropical Atlantic to be cooler than it has been in recent years. They also say there is a “fairly high likelihood” that El Nino, the atmospheric force that suppresses storm formation, will develop by the summer.
“Typically, El Nino is associated with stronger vertical shear across the tropical Atlantic, creating conditions less conducive for storm formation,” Klotzbach said.
The last time four or fewer hurricanes developed was in 2009, when three hurricanes formed. Before that, in 2002, three hurricanes also developed.
Despite the tame prediction, the two CSU climatologists warn that a slow season doesn’t mean that a hurricane won’t threaten the U.S. coastline.
“All vulnerable coastal residents should make the same hurricane preparations every year, regardless of how active or inactive the seasonal forecast is. It takes only one landfall event near you to make this an active season,” Klotzbach said.
Hurricane Andrew is a prime example of how powerful storms can strike even in slow years. The Category 5 system devastated southern Miami-Dade County 20 years ago in 1992 – a year that otherwise saw only six named storms.
Klotzbach and Gray predict that tropical cyclone activity in 2012 will be about 75 percent of the average season. By comparison, tropical activity in 2011, when 19 named storms formed, was 145 percent of the average season.
As part of their forecast, the CSU team predicts:
• A 42 percent chance that at least one major hurricane will strike the U.S. coastline. The long-term average probability is 52 percent.
• A 24 percent chance that a major hurricane will hit the U.S. East Coast, including the Florida Peninsula. The long-term average is 31 percent.
• A 24 percent chance that a major hurricane will make landfall on the Gulf Coast from the Florida Panhandle west to Brownsville, Texas. The long-term average is 30 percent.
WSI, a part of The Weather Channel, also calls for a relatively tame season, although one that would be closer to normal, with 12 named storms, including seven hurricanes.
Aside from Hurricane Irene, which struck North Carolina and caused major flooding in the Northeast last year, the United States has enjoyed three relatively calm storm seasons. Prior to Irene, the last hurricane to strike the U.S. coast was Category 2 Ike, which struck Texas in September 2008.
Florida, historically the most hurricane-battered state in the nation, also has been extremely lucky. It has gone a record six seasons without seeing a hurricane strike. The last hurricane to hit Florida was Wilma in October 2005.
Gray said despite the below-average forecast, the Atlantic basin remains in an era of tropical intensity, the result of a natural cycle. He said he expects that era “to continue for the next 10 to 15 years or so.”
Hurricane season starts June 1 and runs through Nov. 30.
© 2012 the Sun Sentinel (Fort Lauderdale, Fla.), Ken Kaye. Distributed by McClatchy-Tribune News Service.
Finding, fixing your credit score
• All’s fair to Fair Isaac. Fair Isaac Corp. (FICO) does the math behind the credit scores sold by consumer-reporting agencies Equifax, TransUnion and Experian. Its site includes this page on fixing or improving your credit rating and has a lot of links and tips, the most important of which may be to force discipline into your credit use and to be suspicious of quick-credit-repair offers. There’s also a link to guidance for disputing errors in your credit history.
• The free pass. You are allowed, under a law called the Fair Credit Reporting Act, to get a free copy of your credit report every year from each of the big nationwide reporting agencies noted above. This is the centralized site for doing so. Beware of other offers, and remember that getting a free credit report does not include your credit score. You probably will have to pay to get that – and each agency produces its own report for a few bucks apiece.
• Report fraud. You need to call the police if someone has gotten hold of your credit-card number, or has made you the victim of any sort of fraud. Beyond that, the Federal Trade Commission has a program called Consumer Sentinel for channeling reports into a national database of telemarketing and identity-theft complaints. Start at this page to see how complaints are handled and the wide range of issues on which the complaint network has been gathering data.
• Practical advice. Bankrate.com columnist Leslie McFadden has some practical reminders about the strange world of credit ratings. For one thing, you won’t improve your score by closing credit-card accounts. That’s because your rating is based in part on how much available credit you have. Closing an account lowers that total. There may be other good reasons to close an account – to stop paying a high annual fee, for example – but this advice is good to keep in mind.
Copyright © 2012 The Philadelphia Inquirer. Distributed by MCT Information Services.
Today in KW training I learned I need to blog. Now about what? Here is my FB page for you to see. https://www.facebook.com/#!/pages/Lake-Nona-Orlando-Florida-Realtor/266566783386247 & my website http://www.greater-orlando-homes.com
You can learn about the real estate market or search for a home. Ask questions. I’ll do my best to answer them. If I don’t know the answer I’ll find someone with the answer.