The flood of investors buying homes with cash may have peaked, but investors are still out in droves representing a large portion of the house-buying population.
In 2013 something like 40% of home sales were individuals using a mortgage, 40% were all-cash, more than about 15% were distressed sales and 5% were flips. That number of all-cash (mostly investors) is dropping, but they are still active.
That worries homeowner advocates who think investors are pushing potential homebuyers – people who will buy a home and live there – out of the market.
Now some 78 organizations are calling on federal regulators to address first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues flooding into local housing markets, buying up homes.
These problems, they say, have been worsened by banks withholding REOs from the market and federal housing agencies conducting bulk sales of foreclosed homes and distressed mortgages.
The demands from the advocates range from the reasonable to the ridiculous. They want more oversight from various federal regulatory bodies and studies on the disparate impact of REO on various communities, but they also demand more transparency in agency rating for REO securitizations, which are already under regulatory microscopes.
So far, two portfolios of single-family rental homes have been securitized. Analysts from JPMorgan Chase (JPM) and Credit Suisse (CS) said they see a lot of potential growth in REO-to-rental as an investment in 2014.
“There are some eerie parallels between what’s happening now and the mortgage meltdown. In both cases, the overarching similarity is a drive for higher and higher profits without regard for harmful impacts on families and communities,” said Kevin Stein, associate director of the California Reinvestment Coalition. “That’s why we’re ringing the alarm bell now and asking regulators to act. Wall Street and other cash investors are making it harder for families to buy their first house, for renters to stay in their communities, and for neighborhoods to recover.”
The advocates' complaints include:
The advocates want the following:
The effect on home prices is debatable. The demands of these groups would effectively put the brakes on REO-to-rental.
Jed Kolko, chief economist with Trulia, said that while housing affordability will worsen in 2014 and home buying will decline, he doesn’t think the wave of institutional investors have a significant effect on rental rates, especially in markets like California where much of the price appreciation can be attributed to the “big bounce” of coming back from the 2008 crash.
“I compared the increase in single-family rental share with price and rent changes over the past year. Markets with larger increases in the single-family rental share had higher price and rent gains in the past year," Kolko said. “However – and this is what I suspected when we first talked about this – there’s another factor: the severity of the housing bust. Harder-hit metros saw both a bigger increase in single-family rentals and higher price increases in the past year (due to the rebound effect).”