Investors Fuel Home Buying Frenzy, Driving Prices Higher
The investors are coming. The investors are coming. Well, actually, they’re already here. But, unlike in the movie “The Russians are Coming” the investors are quite organized and helping to fuel the housing recovery.
They have been sucking up inventory like blood-thirsty mosquitoes. Considering that investors and flippers were partly to blame for the housing bubble of the last decade, their latest feeding frenzy should be of some concern.
I say that investors were partly to blame because as we know there was plenty of blame to go around. Heck, Time Magazine found at least 25 people who should have been held responsible for the financial crisis starting with Angelo Mozilo, founder of Countrywide and ending with Bear Stearns’ CEO Jimmy Cayne.
But that is all in the past. Let’s look at what’s happening now.
In March, existing home prices in the U.S. were up 12 percent from the same time last year. That’s great news for sellers who have struggled to keep their heads and mortgages above water during the housing downturn.
But it’s not such great news for individual buyers looking to dip their toes back into the real estate market. In fact, while prices were up in March, sales actually dipped as a result of a lack of available inventory due, in part, to investors snapping up what is for sale and also to the fact that banks aren’t, as earlier feared, opening the floodgates of foreclosures.
According to published reports, private-equity funds, real estate investment trusts and high-net-worth investors have raised more than $10 billion to buy homes. The National Association of Realtors says investors account for about one-third of home purchases. Big names such as the Blackstone Group, which has been buying $100 million worth of single family homes each week since early last year, are driving demand. And, according to a recent report from Corelogic, investors are expected to continue to drive demand through the rest of this year.
Now the question becomes are we headed toward more chaos like the kind created by the folks in the fictitious New England town who freaked out when a rag-tag crew of Russians accidentally lands on their island? Or, have we learned our lesson and will we be able to reel in the insanity before it’s too late?
Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.