Blackstone drops home buying 70%...Uh Oh!
The whole story about how private equity firms and hedge funds have steamrolled into the residential home market to become this decade’s slumlords is a story covered on this blog before mainstream media even knew it was happening. I first identified the trend in January of last year in one of my most popular posts of 2013: America Meet Your New Slumlord: Wall Street.
With all that in mind, let’s now take a look at the latest article from Bloomberg, which points out that Blackstone’s home purchases have plunged 70% from their peak last year. Perhaps they overestimated the rental cash flow potential of indebted youth living in their parents’ basements?
Now read this fantastic article from real estate analyst Mark Hanson, who points out that homes are much less affordable now that they were at the peak of the most recent housing bubble.
Never fear serfs, now that homes have once again become unaffordable, the banks are bringing back subrpime loans so that Blackstone can sell back to the muppets.
Ah, crony capitalism at its finest.
Buy low, sell high. What's wrong with that? Blackstone isn't creating sub prime loans. In fact their company B2R is actually lending to investors.
It didn't say they were giving out subprime loans, did you read the article?
Mark Ferguson
In my market, Indianapolis, they weren't buying low... They were paying retail prices. This inflated house prices and caused the retail buyers to overpay because they were fighting the hedge funds for pretty much any and all inventory in the market... They created an artificial sellers market as there is/was no way they could continue buying at that pace.
I sold a number of properties (flips) to another hedge fund, AH4R, and they paid at least my asking, sometimes more (only one occasion where they offered less).
IMO, this artificially inflated prices for retail buyers.... And when they stop buying, will cause a correction in the market again.
Also, what happens to the market if/when they decide to dump their properties in mass quantities? I've seen a number of AH4R properties listed for resale.
@Justin B. I know they aren't offering them. My comment was just saying sub line loans are a completely different issue then hedge funds buying or selling properties.
The hedge funds are run by big money. They didn't get big money by being dumb. If the hedge funds flooded the market with properties they would be undermining their own market.
I heard the credit guys from Moody's and credit Suisse talk at a conference recently. They rated AH4R so high for their securitization because they would still make money assuming they had 50% vacancies and 20% or 30% decrease in rents. When you pay with cash it's pretty easy to make money with rentals.
@Terry B. my market is the same way with no inventory and rising prices. We have had 0 hedge find buying where I am.
I read the article, I also posted a link to this article a few weeks ago when Wells and Chase announced the lower score criteria, for FHA backed loans.
I am not smart enough to understand how the FHA could still back the mortgages with all the new regulation in place.
Anyone?
John
AIG had a GREAT RATING!
Over the last decade, Moody’s and its two principal competitors, Standard & Poor’s and Fitch, played this game to perfection — putting what amounted to gold seals on mortgage securities that investors swept up with increasing élan. For the rating agencies, this business was extremely lucrative. Their profits surged, Moody’s in particular: it went public, saw its stock increase sixfold and its earnings grow by 900 percent.
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?pagewanted=all&_r=0
If you didn't learn your lesson the first time....
And how is it a completely different issue? I distinctly remember hedgefunds helping out in the last meltdowns...
I hope the hedge funds have helped stabilize the market and that prices continue to rise... I just have my doubts and will continue to invest with that in mind.
Would any of you be interested in sharing your opinion on how best to position oneself to benefit from what appears to be another bubble, your opinion on time line, liquidity, cash on hand, etc.... I read this article and; don't take this the wrong way; I smiled a bit... started thinking.... blood may soon be in the water... how best do I prepare myself.....
That being said I am completely new to this REI game and still working on my strategy and criteria. Just interest in hearing from those who seem more knowledgeable than I.
If you look at the numbers, values are very inflated. If your a flipper I would limit the exposure to number of simultaneous flips going on at the same time.
This all depends on if your buying cash or getting a mortgage.
I personally took the money I was going to buy a property with and I bought gold 1oz maple leafs and 1oz silver eagles. That's my hedge.
I would consider buying a 4plex that I could live in, getting an fha loan and paying it off with the other's rent...
@Frank Fiore Jr I don't think we are in another huge bubble.
@Justin B. prices may be inflated in some metro areas, but overall I don't think they are. I think the reason prices are higher is because there is a shortage of housing. For 7 years there was basically no building because everyone bought cheap REO and short sale inventory. That has dried up, but the population continues to rise. Look at average new construction costs compared to the median house prices and new construction is much higher than the median price. Builders can't build cheap enough to meet the demand in most areas. There is no reo inventory in the low price range. To me I see no bubble, I see little inventory with high demand.
The edge funds have a tiny fraction of the inventory and if they sold all at once it would affect certain markets, but not the whole country. There is no way they are dumb enough to do that. This is a different situation then the last housing bubble. The banks sold off reo because they had too. The banks also did not own the REOs until they foreclosed. The banks had to wait for foreclosure process, foreclose, then evict. The hedge funds have complete control because they own the homes. No foreclosure would have to be done, no short sales. The hedge funds are under no pressure to sell like the banks were.