Jun 05, 2013

    Wall Street fuels housing boom again

    THE last time the housing market was this hot in Phoenix and Las Vegas, the people pushing up prices were mostly small-time buyers.

    Nowadays, they are big-time - Wall Street-big.

    Large investment firms have spent billions of dollars over the last year buying homes in some of the nation's most depressed markets. The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out.

    Some are already wondering if prices will slump anew if the big money stops flowing.

    "The growth is being propelled by institutional money," said Ms Suzanne Mistretta, an analyst at Fitch Ratings.

    "The question is how much the change in prices really reflects market demand, (and not just) one-off market shifts that may not be around in a couple of years."

    Wall Street played a central role in the last housing boom by supplying easy - and, in retrospect, risky - mortgage financing.

    Now, investment companies like the Blackstone Group have swooped in, buying thousands of houses in the same areas where the financial crisis hit hardest.

    Blackstone, which helped define a period of Wall Street hyperwealth, has bought some 26,000 homes in nine states.

    Colony Capital, a Los Angeles-based investment firm, is spending US$250 million (S$313 million) each month and already owns 10,000 properties.

    Amid little fanfare, these and other financial companies have become significant landlords on Main Street.

    Most of the firms are renting out the homes, with the possibility of unloading them at a profit when prices rise high enough.

    Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills.

    Investment companies are buying up run-down homes at a time when ordinary people cannot or will not.

    Nationwide, 68 per cent of the damaged homes sold in April went to investors, and only 19 per cent went to first-time home buyers, according to Campbell HousingPulse.

    Mr David Bragg, an analyst at Green Street Advisors, said: "When people write the story of this housing recovery, these investors will be seen to have helped put the floor under the housing market. In some of the key markets, that contributed to the recovery."

    The story, though, often looks more complicated on the ground.

    Mr Joe Cusumano, a real-estate agent in Riverside County, California, said that in recent months, 90 per cent of his business had been for companies like Invitation Homes, a Blackstone subsidiary.

    But Mr Cusumano said he wondered if faraway investors would properly maintain the homes they buy. He said that Invitation Homes had been willing to put money into the properties, but he was not so sure about other players.

    He is also worried about what will happen when these investors start selling, as they inevitably will.

    He said: "The thing that scares me is the values going up so quickly. That's what happened before and that's what's scaring me. Is this going to happen again?"

    Despite the recent gains, housing prices remain well below their pre-crisis highs.

    For example, in Riverside, home values are still down more than 40 per cent from their 2006 records, according to CoreLogic.

    To the extent that the housing rebound is becoming overheated in some pockets, it does not carry the most significant risks of the real-estate boom that came crashing down in 2008.