My first job out of college was covering state politics for the biggest radio-TV station in Wyoming.
Yes, I had a mustache, fluffy hair and wore a bright orange Polyester blazer with the station’s logo sewn boldly on the breast pocket just like Ron Burgundy, who wouldn’t be created until 40 years later, after I had found other ways to make a living.
I still think of myself as journalist, so when the end of the year rolls around, I don’t do predictions or New Years’ resolutions. Instead, I like to get ready for the year to come by putting into perspective the events of the year past.
We’d probably all agree it’s been a heckuva year. In many ways, real estate investing is a different business than it was 12 months ago, what with hedge funds, disappearing distress sales, rental rates that came through as predicted in most markets and the housing recovery hitting high gear, making it harder to acquire but easier to flip, for those so inclined.
So here are my top ten. Do you agree or disagree? Or perhaps you’ve got some better ones for the list? Chime in with your contributions in the comments section below.
1. Blackstone’s Invitation Homes marketed the world’s first REO-to-Rental bond. Securitization always has been keystone of most hedge funds’ business plans, whether they will admit it or not. Clearly the industry leader, Blackstone paved the way with a $479.1 million security serviced by rent checks from 3,207 properties. (See Pay Day for Hedge Funds).
2.The real estate recovery arrived in force, raising rents, property values and the price of acquisitions. For investors, the recovery was mostly blessing, not a curse. Rising home prices in most of the nation’s markets also boosted rents, putting smiles on landlords coast to coast. Though most investors resisted the temptation, any “accidental” landlords would not resist the temptation to sell when price increases and inventory shortages hit double digits, especially in red hot Northern California. As the year ends, the price parade is cooling off and most experts look for much more moderate appreciation in 201.
3. State foreclosure politics changed the geography of investing. The “sand” states, birthplaces and incubators of modern real estate investing, suddenly became expensive and crowded. Pioneers headed North and East to find better prices and bigger selections of foreclosures in judicial states where laws delay processing and allow time-consuming appeals. RealtyTrac’s latest listing of the 20 top markets for foreclosure discounts included Pittsburgh, Mobile, Richmond, Canton and Minneapolis. Michigan, Ohio, Maryland, New York and New Jersey are becoming the new hot spots for as long as their inventories last—which should at least through 2014.
4. Federal Reserve economists put investors in their crosshairs. Last fall two top Fed economists published a new study on investment in single family rentals. Their findings could help convince policy makers that all investors are a force for economic instability that could, in future, help provide fodder for years to those who would like single family rentals converted back to owner-occupancy.
Above all, they pointed out that large investors are creating a new dimension of risk. “Many large investors say that they plan, in time, to sell their entire portfolios of houses and the associated management platforms to entities that will continue to manage them as rental properties, rather than selling homes one-by-one on the owner-occupied market. Some of the largest investor portfolios may go public as real estate investment trusts, or REITs, in order to tap into a broader investor base, which includes both individuals and institutions such as mutual funds and pension funds… However, investors’ use of debt may rise over time as revenues increase and stabilize, and net incomes become positive. (Federal Reserve Economists Zero in on Investors)
5. REO REITS created a new asset class category on wall street and a new way to invest in residential real estate. A handful of new Real Estate Investment Trusts, led by Silver Bay Realty Trust of Minnetonka, Minn found a new way to raise the cash they need to compete with the private equity funded hedge funds. Silver Bay went public in December 2013 and raised $245 million. Within the year it was followed by American Residential Properties in May and American Homes 4 Rent in July. Two more, Waypoint Homes and Colony American Homes, have filed for IPOs.
6. Foreclosure activity in November fell to the lowest level since December 2005. Folks like Washington Mutual and Countrywide were still happily selling mortgages to anyone with a pulse and the nation’s economic leaders were almost all blissfully blind to the coming subprime disaster. RealtyTrac’s latest foreclosure report is a bit of a stroll down memory lane. Now that foreclosures have come full circle, aside from the markets mentioned above, its highly unlikely they will return in such numbers. Delinquencies are at decade-lows due to tight lending standards an ability-to-pay regulations like the QM Rule, which takes effect this month.
7. Hedge funds start shopping on the MLS. With no more foreclosures or short sales top buy, what’s a hedge fund with billions burning holes in its pockets to do? Somewhere along the line, the funds discovered it’s cheaper to manage rentals if they are close to each other rather than spread all over town (duh) (See Tracking the Hedge Fund Big Dogs: Buying from the MLS). Will that lead to hedge fund ghettos? Blackstone Bungalows, Wayside by the Seaside or Colony’s Colonials?
8. Short sales fade away. Born out of necessity and plentiful only when lenders got tired of long lead times and endless carrying costs, short sales virtually faded away in the final months of 2013. Buried in a September news release from Lender Processor Services was a notation that the number of short sales had fallen 60 percent from a year ago, a fall from grace twice as steep as distress sales overall. Ironically, in some markets short sales have become less expensive than foreclosures (REOs) in a number of markets where distress sales inventories are tight and where investors, including large hedge funds. (The Short Life of Short Sales).
9. An uptick in high end foreclosures turns the spotlight on high end flipping. A new study by RealtyTrac found that the number of ultra high-end properties worth more than $5 million with a foreclosure notice rose 61 percent from the same time period in 2012 to a total to date of nearly 200 properties, a tiny percentage of the 1.2 million homes that went into foreclosure this year. However, these 192 homes represent a 61 percent increase of super high end defaults over 2012. There’s nothing new about luxury home flipping but now it’s turning into a specialty.
10. Investors bring about the SFR lifestyle. Almost invisibly, Americans are renting in new ways. Families now can choose to rent and enjoy most of the benefits of ownership. Young families just starting out have more options to rent before they are in a position to buy. These and other lifestyle changes are made possible by the 14 million single family rental available to consumers today; more than ever in history. (How Single Family Rentals are Changing the Way America Rents).
Conclusion: What to Expect in 2014
Next year we expect to see designers take the single family renter seriously with lines of furniture, décor, table ware and linens designed with the SFR family in mind. They’ll be flexible, portable and go well with the earth tones landlords like to use to hide wear and dirt.
The year to come will bring obvious news that we all can anticipate—and you can read about them elsewhere in forecast and production articles. What keeps life exciting are the surprises that each new year has in store and pops on us when we least expect them. I can hardly wait.
What do you think the biggest story for real estate investors was in 2013? Leave your comment below!