(The authors are Reuters Breakingviews columnist. The opinions
expressed are their own.)(Fixes links.)
By Daniel Indiviglio and Agnes T. Crane
WASHINGTON/NEW YORK, Oct 25 (Reuters Breakingviews) - The
recovery in U.S. housing is not as solid as it looks. Prices
were up 4 percent in the six months to July, according to
Case-Shiller. But that may be built on a less than solid
foundation. That’s because cash-rich investors looking to buy
properties to rent, whether new or out of foreclosure, seem to
be driving the uptick, not regular consumers. That’s helpful,
but if investors find better opportunities before individuals
jump back in, the recovery may falter.
There’s no solid data on how many houses such investors are
snapping up between them. But the Mortgage Bankers Association
purchase index currently sits 25 percent below its five-year
average. Meanwhile, building permits for new homes rose 45
percent in September compared with the previous year, according
to the Census Bureau. Permits for structures with five or more
residences surged 93 percent. This strongly suggests that
investors are fueling the boom.
Blackstone (BX.N) is one of the biggest players. It now owns
7,000 homes that it rents out. Last week, Chief Executive
Stephen Schwarzman said the private equity shop is buying more
than $100 million-worth of residential real estate each week. At
an average of $150,000 a pop, that’s 666 houses every seven
This is good news. Such sales have been a big contributor to
stabilizing prices. And it’s encouraging that investors are
purchasing these properties without recourse to
taxpayer-assisted financing. But the amount of homes for
potential sale is staggering: there were some 2.3 million units
in the foreclosure pipeline in the second quarter, according to
CoreLogic. That amounts to hundreds of billions of dollars worth
Even if dozens of Blackstones existed to binge on homes,
there’s no guarantee they’ll stay in the market until consumers
come back. Last week, for example, hedge fund Och-Ziff began
shopping its portfolio of 300 foreclosed homes, unsatisfied with
Meanwhile, challenges remain to individuals returning en
masse as home buyers. Banks generally only lend if they can pass
the mortgages onto federal agencies like Fannie Mae FNMA.OB
and Freddie Mac FMCC.OB and financing for borrowers with lower
credit remains shuttered.
Investors can fill the gap for now. But if they see
opportunities drying up or, worse, start dumping their
portfolios if returns fizzle, house prices are likely to
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- New single home sales rose 5.7 percent in September to an
annualized rate of 389,000, according to a U.S. Commerce
Department report released on Oct. 24. At this sales pace, it
would take 4.5 months to clear existing new home inventory.
- On Oct. 23, the Federal Housing Finance Agency (FHFA)
reported that home prices were up 4.7 percent in the 12 months
ending August, in line with levels seen in June 2004. Only homes
owned or guaranteed by Fannie Mae and Freddie Mac are used to
calculate changes in the FHFA home price index.
- On Oct. 18, Blackstone Chairman and Chief Executive
Stephen Schwarzman said the firm was buying over $100 million a
week of houses. To date, the firm has purchased $1 billion of
individual houses at about $150,000 a piece. The firm counts
around 7,000 homes in its residential real estate portfolio.
- The FHFA’s pilot program to sell houses to investors sold
only 699 homes owned by Fannie Mae in its inaugural effort to
transform foreclosed houses into rental units, according to a
Sept. 10 FHFA press release.
- Och-Ziff hedge fund intends to sell its entire portfolio
of about 300 foreclosed homes, sources told Reuters on Oct. 17.
The report indicates that the return generated from their rental
income has been less than expected.
- FHFA release: link.reuters.com/gus53t
- Reuters: EXCLUSIVE-Och-Ziff hedge fund looks to exit
landlord business [ID:nL1E8LHC39]
Bull market [ID:nL1E8LBBMZ]
Feeling better [ID:nL2E8EC8V9]
Rental nation [ID:nL2E8D8BHM]
- For previous columns, Reuters customers can click on
[INDI/] and [CRANE/]
(Editing by Antony Currie and Martin Langfield)
Keywords: BREAKINGVIEWS USA/HOUSING
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