Friday, May 31, 2013

"Smart Money" Says No To "Stupid Money"

A large institutional single family home buyer, Carrington Holding, has stopped buying single family homes.  This paragraph from a Bloomberg article is the article's exclamation point:
"We just don’t see the returns there that are adequate to incentivize us to continue to invest,” Rose, 55, chief executive officer of Carrington Holding Co. LLC, said in an interview at his Aliso Viejo, California office. “There’s a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”
The large influx of buyers looking for homes to rent and lack of housing supply as foreclosures drop, has lead to rising home prices and made acquiring homes-for-rent a tough market.  Yields on homes have dropped (as prices have increased) making the overall home-for-rent market less attractive to some institutional investors. 

Here is a Business Insider article that plagiarizes is nearly identical to the Bloomberg article.

Just because some institutional investors have stopped buying single family homes doesn't mean they are exiting the housing market.  Carrington has owned and managed 25,000 homes for itself and others. 

The key takeaway from this article, and others that I have read, is that institutional ownership of single family homes is for real and not going away.  I always thought of the institutional play as one giant flip, where institutions swept in with cash after the crash to buy distressed homes at a discount, with the intent to re-sell the homes at a profit in a short period to individual homeowners.  I no longer believe this.  The numbers are too big.  Institutions will largely sell their homes to other institutions.  A large portion of homes acquired after the crash will remain permenant rentals, where they'll be packaged and sold as portfolios.  The Bloomberg article (and its Business Insider copycat) mention two REITs, American Residential Properties Inc. and Silver Bay Realty Trust, which own and operate single family homes as their primary business.  The impact of 2008's credit crisis will be felt for years, and in ways we don't even yet know.

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