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Wall Street Goes Local

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Posted On: 12/11/2013

Question:

Wall Street banks are buying up huge numbers of single-family homes. How does this impact private homebuyers?

Answer:

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We usually think of single-home real estate investors as local people who buy several properties and keep them over time or as rehabbers who buy properties, fix them up and then quickly re-sell. The entry of Wall Street firms into the single-home market – as opposed to apartment ownership – is something new.

The so-called "buy-to-rent" or BTR market generally includes six major firms, according to a recent Morgan Stanley report. Such firms, as of late summer, had purchased some 78,000 properties nationwide.

Morgan Stanley says the BTR market could expand to more than $100 billion during the next few years, about six time its current size.

In October, Bloomberg News reported that the industry leader, the Blackstone Group, had paid $7.5 billion to acquire 40,000 homes during the past two years.

So how does this impact the real estate marketplace?

First, despite dollar figures that make the BTR market appear large, the market activity is relatively inconsequential on a national basis because existing home sale activity is huge, perhaps reaching 5 million units just this year.

Second, the BTR companies are largely active in the major foreclosure centers: Florida, Nevada, Arizona and California. The more homes that are bought in such areas – regardless of who or what buys them – the better for all owners. Seen another way, the BTR movement is largely non-existent in many markets.

If you're a buyer where BTR firms are active, you may face additional competition. However, these companies are largely in the “bid low, fix up, hold long” business. A house in good shape at fair market value may be ideal for you but may not hold much interest for them.

Overall, it's good that Wall Street is investing in local real estate and buying up foreclosures and short sales, properties that are usually sold at discount. A smaller inventory of distressed homes means less pressure to hold down prices, something most of us favor.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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