Warren Buffet really opened up a can of worms when he made the statement in the Spring of 2012 that he would buy "a couple hundred thousand" single family homes and hold them for a long time, at low mortgage rates. The moment that statement came from his lips, every hedge fund in the Country decided they were going to get into the business of single-family homes, and they certainly have!
Blackstone, the largest real estate private equity fund in the U.S., has since invested over $3 B into the purchase of single-family homes for use as rental properties. This same hedge fund recently completed a $2.1 B loan via Deutsche Bank. This new loan will allow the group to take down another $2 B of inventory over the next 2 years.
Particularly in Southern California, Las Vegas, and Phoenix, hedge funds like Blackstone have created what many are calling an “artificial mini-bubble.” With so many buyers coming off the sidelines in 2012, combined with representatives of hedge funds bidding up properties to above asking prices, it’s no wonder that prices are continuing to rise in those markets.
The back-log of REOs, together with the large hedge funds aggressively acquiring residential real estate, has all but eliminated the available REO inventory and has increased competition for properties across the board. In some markets in the U.S., for example Southern California and Phoenix, the demand for properties has tipped the scale, this has also made competition among buyers in these markets extremely fierce.
Is Wall Street fueling another real estate bubble? With such a macro move by U.S. hedge funds, prices will certainly rise in the short-term, but is this all artificial and short-lived? If Wall Street investors fail to see the expected returns from their mass purchases of single family homes, will they all rush out of the market and cause prices to take a nose dive?
These are all good questions. I would love to hear what you have to say on this topic. Please share your comments below.
Corey Curwick Dutton, MBA. Real Estate Lender for Private Money Utah. Corey Ann Curwick is a private money consultant for Private Money Utah, a real estate lender based in Salt Lake City, Utah. Corey is from Austin, Texas and is an MBA Graduate of the prestigious Thunderbird School of International Management. An authority in the private money lending industry, Corey provides educational resources for investors who use hard money loans in their real estate investing activities. Before she joined Private Money Utah, Corey was the President of an investment education company in Utah called Bray-Conn Investments LLC. In this role, Corey organized classes, which taught investors how to invest in five asset classes. In her free time, Corey enjoys skiing, snowboarding, and mountain biking in the beautiful Utah outdoors.