Could rental houses owned and managed by deep-pocketed hedge funds and big investors be the post-bust steppingstones to homeownership for huge numbers of renters?
Could they also provide a form of safe harbor or sanctuary for thousands of families who were displaced by financial difficulties from their previous homes through foreclosures or short sales?
A new national study suggests that the answer to both questions is yes.
Over the past five years, according to Wall Street analysts’ estimates, between $7 billion and $9 billion worth of distressed single-family homes have been purchased and converted to rentals by institutional investors – hedge funds, private partnerships of high net-worth individuals and even pools of capital raised among investors in foreign countries.
Unlike traditional “mom and pop” rental-home investors, these funds have been scooping up dozens, sometimes hundreds, of properties at a time through all-cash purchases of foreclosures, short sales and bulk packages. Some of the bulk acquisitions have come from the troubled-asset portfolios of financing giants Fannie Mae and Freddie Mac, others from banks that have taken over homes left by strategic defaulters.
Though single-family rental homes have long been a part of the American housing scene, the involvement of large-scale institutional investors is causing the category to explode. According to a new study conducted by pollster ORC International for Premier Property Management Group, a company that works with investors, roughly 52 percent of all rental units in the country are now single-family homes and house 27 percent of all renters.
Recent Census Bureau data cited in the study indicate that the number of single-family rentals grew by 21 percent between 2005 and 2010 – from the top of the boom through the depths of the bust and foreclosure crisis – compared with a 4 percent increase in total housing units.
What’s the significance of this rapid conversion of ownership units to rental? For one thing, according to Mark Fleming, chief economist for CoreLogic, a mortgage and real estate research firm, mass conversions are contributing to the severe declines in homes-for-sale inventories in markets where foreclosure rates were most pronounced during the bust. Lack of inventory, in turn, is pushing up prices of entry-level homes in those areas.