As the general economy struggles to clean up the suds from the pop of the last bubble, in the eyes of some, the relentless nature of the real estate cycle is already creating the next one. Regular readers of these web pages are well-acquainted with the fact that vast flows of investment capital are being channeled into various types of rental housing. Yield-craving investors are underwriting the construction of thousands of new apartments in the Atlanta city limits alone, and the trend is a national one. At the same time, some $6 billion has been raised by hedge, private equity and all other manner of investment funds to buy distressed single family assets to be converted into rental housing.
Both rivers of capital are meant to solve a problem and grasp the opportunity inherent in Americans' new aversion (or inability) to buy a home. But the stampede of capital into both of these spaces is changing the game. On the new construction side, apartments are, arguably, being overbuilt. Of course it will be impossible to know whether this is the case for a couple of years (what's the definition of insanity again?) But herd mentality, particularly among institutional investors, is dictating that multifamily projects are getting the lion's share of investment capital.
As for investors seeking single family homes, the flood of capital is running up against a supply issue. The widespread bulk sales of foreclosed homes from banks, Fannie Mae and Freddie Mac are not materializing as expected. And a sudden lack of inventory of single family resales (even in decimated markets like Atlanta) is putting upward pressure on home prices generally, which has the dual effect of making acquisitions more expensive for bottom-feeding investors and making the current owners of these assets reticent about selling them in bulk and on the cheap.
While no one thinks the foreclosure crisis is over- one figure cited in the Bloomberg piece pegs the number of homeowners still expected to lose their homes at 6 million- a rise in values could both reduce this number and make the conversion of these lost homes into rentals less economically viable. Which further clouds the picture for opportunistic investors. And would-be domicile seekers. So, today's answer to the age old question of rent or buy? Beats us. But some folks have crunched the data and said these are the places you definitely want to rent.
· Private Equity Has Too Much Money To Spend On Homes [Bloomberg]
· Testing the Multifamily Breakpoint, In Both Equity Investment and Rents [Multifamily Executive]
· Are We Building An Apartment Bubble? [Forbes]
· Metro Atlanta’s housing market is beginning to show improvement [Saporta Report]
· DON'T BUY: Here Are The 12 Best Home Rental Markets Across America [Business Insider]