Statistics across most markets show rents are going up. The monthly OC Housing market report has shown steadily declining prices and steadily increasing rents over the last two years. Resale prices are falling because loan owners are being forced out of homes they can’t afford, and the resulting REOs and short sales are deflating the housing bubble. 
These same former loan owners end up becoming renters which increases demand for rental houses.
Ordinarily, if loan owners were becoming renters, prices in the rental market wouldn’t be disturbed because the REO would be converted to a rental and supply would equal demand. However, since banks have been withholding supply in an effort to hold up prices, the conversion from owner-occupied to renter-occupied has been hindered and delayed. Banks and the GSEs would rather sell their REO to owner occupants. The GSEs want to do this because part of their mandate is to maintain an artificially high home ownership rate. The banks want to sell to owner occupants because they are generally willing to pay more than investors. These biases toward selling to owner occupants has kept prices from falling to market-clearing levels where cashflow investors would buy the property and hold it for rental cashflow; thus the number of rental properties on the market is insufficient to meet demand and rents are going up.
There has been tremendous interest by private equity groups who want to buy REOs and convert them to rentals for their cashflow. These new buyers will deliver enough capital to the most beaten down markets to support resale prices and provide a supply of rentals to blunt the dramatic increases in rent. REO-to-rental investors will restore balance to the housing market.
Rents soar as foreclosure victims, young workers seek housing
Few new units and tight standards for home loans add to the pressure. The average monthly U.S. rent is at an all-time high, and a 10% jump in Los Angeles County over the next two years is forecast.
By Alejandro Lazo, Los Angeles TimesMay 5, 2012, 8:09 p.m.
A nation still struggling to clear up one housing debacle has run smack into another — soaring rents.
The foreclosure mess has pushed millions of former homeowners with tarnished credit into a competitive apartment market across the U.S. Add fresh demand from young workers, few new units and tight standards for home loans, and the result is rental sticker shock not seen in years.
The push from young workers for rentals is present all the time, but the influx of new rental demand from loa
Rents are surging from New York to Los Angeles. The average monthly U.S. rent for apartments hit $1,008 in the first quarter, pushing past the all-time high set in the third quarter of 2008, according to the data firm RealFacts. USC’s Lusk Center for Real Estate forecasts a 10% jump in Los Angeles County rents over the next two years. In certain markets, it is now cheaper to own a home than rent.
I predicted five years ago that we would reach the bottom once it became cheaper to own than to rent and the overhead supply was cleared from the market by cashflow investors. That is exactly what is coming to pass.
… Units that years ago would have languished for weeks are snapped up in days. The Santa Monica-based listing service Westsiderentals.com is operating 14 hours a day to meet demand from renters. The company has even seen a bump in interest for its “platinum” relocation service, which offers to chauffeur clients to various Southern California listings…. “In L.A., people have gotten so used to how relaxed it was, they are not aware how competitive it’s become,” Balderrama said. “Some people have got it, and some people don’t, and the ones that don’t suffer.”
Rob Magnotta, a real estate agent, recently listed his two-bedroom Irvine condominium for rent on Craigslist for $2,300. He had six applicants within 24 hours, including one who wrote a poignant letter about losing a home to foreclosure.
“It was almost too easy,” said Magnotta, who chose another renter. “I know the rental market was strong. But until you are actually renting the place, I think you are surprised it is that strong.”
Shevy and I talk frequently about the surprising change in the resale market over the last six months. The dwindling supply has completely changed the dynamics from a buyer’s market to a seller’s market. The difference between the resale market and the rental market is important though. The change in the rental market is caused by an increase in demand, whereas the change in the resale market is caused by an artificial restriction of supply. Increasing demand is a sign of strength. Decreasing supply is a temporary market distortion to mask weakness.
… People who’ve lost their homes to foreclosure or short sales are also feeling the sting. Damaged credit means many must pay a premium or put down a bigger deposit to secure a place.Robert Corlette pays about $1,700 a month for a two-bedroom town house in Anaheim Hills that he shares with his wife and five children. The family lost their home to foreclosure in 2009 after Corlette lost his $75,000-a-year job selling insurance. His current job, also in the insurance industry, pays about half that.
If he’s making less than $40,000 per year and spending $1,700 per month on rent while trying to support a wife and five kids, he must be very stressed.
“There is a lot of pressure,” said Corlette, 56. “It wears you down.”
No kidding.
The crash has made owning a home more affordable than renting in some markets. An index by the research firm Green Street Advisors compares buying with renting in 79 metro markets; that index hit its most attractive point last year for buying since 1991, when the firm began tracking the data. Researchers calculate that the after-tax cost of a mortgage is only 10% higher than what it costs to rent nationally after taking into account mortgage rates, property taxes and other factors.
Orange and Los Angeles counties remain more expensive for buyers than renters, though that gap has narrowed, according to the index, while owning a home in the Inland Empire is now more affordable than renting.
Actually, most of Orange County is trading at or below rental parity (see far right column).
Rising rents have converted some renters into buyers. Scott Matulis, 48, recently purchased a town home in Oak Park after enduring two consecutive years of rental increases. His mortgage, taxes and homeowner association fees now total $2,200, just $100 more than what he was paying his former landlord.
Rising rents, falling prices, and prices already below rental parity should be prompting people to buy. Buying in those conditions is usually a wise choice.
“I finally just pulled the trigger and figured I’d be throwing money away on rent,” Matulis said.
He doesn’t mind throwing money away on the rent on money, but he has a problem with spending it on rent? The bullshit “throwing away money on rent” meme may never die. Everyone who spends more to rent money than they do to rent a house is foolish. Any short-term gains from appreciation will get wiped out in the inevitable bust.
Although rising rents may be motivating home purchases by people who are in good shape financially, those increases are walloping working class families and the poor — groups already hard hit by job losses, lost income and stagnant wages.
This is the sad reality of living in coastal California. The Haves have, and the Have-nots live in poverty.
Marisela Alfaro has lived in the same one-bedroom Santa Ana apartment for 28 years. A large bed sits in her living room, where she and her husband sleep; their teenage daughters share the bedroom.
Modest religious art adorns her carefully kept home, but outside Alfaro’s door the building is in disrepair, with tattered screens, broken lights and graffiti. Alfaro said the family pays $820 a month and feels lucky to have the apartment.
“There are other places that cost much more,” she said in Spanish. “It’s been difficult because my husband works in the fields, and that’s the lowest salary that there is, and if there is no rain, there is no work.”
Even for those with better jobs, paying rent can be difficult.
Virginia Villa of Brea, a single mother of four who works as a manager at Disneyland, has doubled up with her adult daughter, who contributes $400 to the monthly household budget. Still, Villa said, about half her take-home pay goes toward rent and utilities.
“I have a decent job and I would love to buy a house, but I don’t think that’s possible to do,” Villa said. “In O.C., it’s even difficult to find a substantial apartment or especially a house to rent — the rental cost for houses is really high.”
The poor who have to rent because they can barely make ends meet are the true victims of the housing bust. The loan owners are getting all the attention and the bailout money, but the working-class poor are getting screwed, and they are watching their tax dollars go toward bailout out people with an overblown sense of entitlement.
Typical Ladera Ranch Ponzis
Everyone in Ladera Ranch was living the dream. They all got beautiful new houses for little or no money down, and the house provided them with abundant and steady Ponzi debt income. The house often made more than the salaries of the people who lived there, certainly on an after-tax basis. Take today’s featured Ponzis for instance. They put just over $15,000 down to get the property, and it the five years that followed they extracted over $250,000 in free spending money. When it all blew up, they handed back the keys.
- This property was purchased on 7/27/2001 for $289,000. The owners used a $230,400 first mortgage, a $43,200 second mortgage, and a $15,400 down payment.
- On 3/28/2002 they refinanced with a $256,000 first mortgage and a $30,000 HELOC.
- On 8/16/2002 they refinanced with a $285,500 first mortgage.
- On 3/27/2003 they refinanced with a $285,000 first mortgage.
- On 5/30/3002 they obtained a $35,000 HELOC.
- On 11/19/2003 they got a $99,000 HELOC.
- On 2/13/2004 they refinanced with a $284,500 first mortgage.
- On 10/14/2004 they opened a $197,000 HELOC.
- On 12/30/2005 they refinanced with a $469,000 Option ARM with a 1.5% teaser rate.
- On 1/6/2006 they opened a $66,500 HELOC.
- The defaulted in late 2010 and squatted for over a year.
These people must have had their mortgage broker on speed dial.
Ladera Ranch Overview
Median home price is $413,000. Based on a rental parity value of $644,000, this market is under valued.
Monthly payment affordability has been worsening over the last 2 month(s). Momentum suggests worsening affordability.
Resale prices on a $/SF basis declined from $229/SF to $224/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates declined $16 last month from $2,716 to $2,700.
Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.
Market rating = 10
Proprietary OC Housing News home purchase analysis 
7 GRANVILLE St Ladera Ranch, CA 92694
$329,900 …….. Asking Price
$289,000 ………. Purchase Price
7/27/2001 ………. Purchase Date
$40,900 ………. Gross Gain (Loss)
($23,120) ………… Commissions and Costs at 8%
============================================
$17,780 ………. Net Gain (Loss)
============================================
14.2% ………. Gross Percent Change
6.2% ………. Net Percent Change
1.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$329,900 …….. Asking Price
$11,547 ………… 3.5% Down FHA Financing
3.78% …………. Mortgage Interest Rate
30 ……………… Number of Years
$318,354 …….. Mortgage
$108,236 ………. Income Requirement
$1,480 ………… Monthly Mortgage Payment
$286 ………… Property Tax at 1.04%
$183 ………… Mello Roos & Special Taxes
$82 ………… Homeowners Insurance at 0.3%
$332 ………… Private Mortgage Insurance
$433 ………… Homeowners Association Fees
============================================
$2,796 ………. Monthly Cash Outlays
($226) ………. Tax Savings
($477) ………. Equity Hidden in Payment
$15 ………….. Lost Income to Down Payment
$61 ………….. Maintenance and Replacement Reserves
============================================
$2,169 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,799 ………… Furnishing and Move In at 1% + $1,500
$4,799 ………… Closing Costs at 1% + $1,500
$3,184 ………… Interest Points
$11,547 ………… Down Payment
============================================
$24,328 ………. Total Cash Costs
$33,200 ………. Emergency Cash Reserves
============================================
$57,528 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # K12057486 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$328,888 34 LANSDALE Ct |
0.53 miles 3 bd / 2.5 ba 1,520 Sq. Ft. |
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$259,900 40 GARRISON Loop |
0.81 miles 3 bd / 2.5 ba 1,500 Sq. Ft. |
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$310,000 143 SKLAR St #49 |
0.9 miles 3 bd / 2.5 ba 1,600 Sq. Ft. |
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$435,000 59 ORANGE BLOSSOM Cir |
1.29 miles 3 bd / 2.5 ba 1,838 Sq. Ft. |
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$549,000 47 TUSCANY |
1.59 miles 3 bd / 2.5 ba 2,100 Sq. Ft. |
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$439,000 32 TARLETON Ln |
1.66 miles 4 bd / 2.5 ba 1,914 Sq. Ft. |
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$335,000 7 CLIFFORD Ln |
1.73 miles 2 bd / 2.25 ba 1,617 Sq. Ft. |
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$469,000 16 MELROSE Dr |
1.96 miles 3 bd / 2.5 ba 1,500 Sq. Ft. |
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$399,000 26691 Dulcinea |
1.98 miles 3 bd / 3 ba 1,830 Sq. Ft. |
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34 Responses to “REO-to-rental investors will restore balance to the housing market”
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There’s an accelerating bank run in Greece. Hold on to your seatbelts.
wsj: Greece Teeters as Talks Fail
Depositors Withdraw $898 Million on Monday Alone; Prospect of Euro Exit Looms
Sorry, but it’s not possible for a speculative instrument and balance to exist in the same dominion.
Prices are going to cash value.
http://www.youtube.com/watch?feature=player_embedded&v=JHQOX8EVNmE#!
The private equity investors buying these properties are paying cash. They believe properties in many markets are selling at cash value. That’s why they are getting into the game.
The banks aren’t only withholding product here in Orange County. It’s a nationwide phenomenon. I foresee a substantial decline in sales volumes nationwide this spring and summer due to lack of product. Banks hope people will raise their bids and cause prices to bottom, but since banks won’t make larger loans due to prudent lending standards, that isn’t going to happen.
Pro Teck Valuation: Home Listings Drop 21 Percent Nationwide
Nationwide, the number of homes listed for sale has fallen 21 percent from a year ago, according to Pro Teck Valuation Services’ May Home Value Forecast.
Also, the forecast reported Months of Remaining Inventory (MRI) is at 6.3 months, which is the lowest level since 2006.
A strong market will have 0 to 5 months of inventory, a balanced market 6 to 10 months, and a soft market will have 11 to 15 months.
From 2002 to 2005, when the housing market was booming, the national MRI was at or below 5 months.
As listings and MRI decline, some of the metro areas that fell the hardest may be recovering now.
The report noted that closely watched areas such as Phoenix, Miami, Atlanta, Orlando, and Riverside-San Bernardino are high on the list in terms of seeing the greatest declines in listings. As for areas with low MRI, Phoenix, San Jose, and Seattle topped the list.
Using a broad base of indicators, including MRI, median prices, number of active listings, sales percent change, and other indicators, HomeValueForecast.com ranked the 10 best and worst performing core based statistical areas(CBSAs).
Commenting on top performing CBSAs, Michael Sklarz, principal of collateral analytics and contributing author to HomeValueForecast.com, noted that “Rustic Belt” states such as Michigan and Illinois are seeing positive trends as the number of their active listings decline over the past year.
“This has led to most of these markets having balanced or tight markets based on their Months of Remaining Inventory values,” he said.
When observing trends for the worst performing CBSAs, Sklarz pointed out that a high percentage are located in the Northeast and all locations have double digit months of remaining inventory.
“Also, prices in these metros have held up much better since the market peak in 2005-2006 compared to the current top ranked markets,” said Sklarz. “We believe that the relative rankings in the bottom ranked metros are not offering the same bargains – in terms of compelling prices and high rental yields – as the top ranked ones.”
Top CBSAs
Boise City, Nampa, Idaho
Dallas-Plano-Irving, Texas
Warren-Troy-Farmington Hills, Michigan
West Palm Beach-Boca Rotan-Boynton Beach, Florida
Detroit-Livonia-Dearborn, Michigan
Peoria, Illinois
San Jose-Sunnyvale-Santa Clara, California
Salt Lake City, Utah
Cape Coral-Ft. Myers, Florida
Fayetteville-Springdale-Rogers, Arkansas-Missouri
Bottom CBSAs
Winston-Salem, North Carolina
Virginia Beach-Norfolk-Newport News, Virgina-North Carolina
New York-White Plains-Wayne, New York-New Jersey
Norwich-New London, Connecticut
Hartford-West Hartford-East Hartford, Connecticut
Newark-Union, New Jersey-Pennsylvania
Duluth, Minnesota-Wisconsin
Nassau-Suffolk, New York
Poughkeepsie-Newburgh-Middletown, New York
New Haven-Milford, Connecticut
I don’t think the underwriting standards are all that tight when you consider the availability of FHA. It’s the appraisals that are killing deals right now. So you have buyers willing to pay more than the appraised value, sellers desiring a higher price than recent comps, and lenders that will lend on these deals. The only obstacle is the appraisers. Something tells me they are going buckle sooner or later. Even “independent” appraisal companies (AMC’s) make their money on volume. How long until their standards are compromised to increase revenues?
There can be no legit housing recovery with mini time-bombs (pending foreclosures) all over the nations most desirable neighborhoods. At some point in this game, the banks and servicers are gonna have to foreclose on these loafers! It’ll probably begin after the election … Romney will get the blame.
—————————————————————————————
Housing Will Play a Major Role in Presidential Election, Say Leading Political Insiders
WASHINGTON (May 15, 2012) – Housing and the economic recovery will play a large part in deciding the outcome of the 2012 presidential election, according to public policy experts at today’s Legislative and Political Forum during the Realtors® 2012 Midyear Legislative Meetings & Trade Expo. Former Republican National Committee Chairman Michael Steele, leading Democratic strategist Celinda Lake, and National Economic Council Director Gene Sperling provided their unique insights into issues affecting the long-term direction of the country.
http://www.realtor.org/news-releases/2012/05/housing-will-play-a-major-role-in-presidential-election-say-leading-political-insiders
One of the reasons the chorus in the MSM is eager to call the bottom is to influence the election. For Obama to win, the general population must believe the economy is improving, housing has bottomed, and it’s due to Obama’s policy and leadership. Expect to see the political left grasp onto every piece of good news and false hope about a housing recovery. It will become conventional wisdom by September that the housing market has put in a durable and permanent bottom — and it will all be bullshit.
Obama had an incredible opportunity to get some things done with these gawd-damn banks, and he chose to buddy up with them instead. Now he’s trying to keep the public distracted with divisive issues like “gay marriage, the war on women” and other bullshit. He’s toast come November, and it’s not even gonna be close. The political machine cannot disguise these problems as progress.
Hmmm…Doesn’t anyone knows Romney’s position regarding FHA, Freddie/Fannie, and Fed. Could change things in 2013?
It’s amazing how the political landscape has changed in 45 days.
Romney is trailing in the polls and this is before most have even starting vetting him as a candidate. The best Republicans can hope for is to pick up some seats in Congress because the Presidency is a lost cause.
Presidential Election – Gallup
Obama
45%
-1
Romney
45%
-
7-day rolling average
lmao
Needy States Use Housing Aid Cash to Plug Budgets
California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.
http://www.nytimes.com/2012/05/16/business/states-diverting-mortgage-settlement-money-to-other-uses.html?_r=3&partner=MYWAY&ei=5065
Moral Hazard?
Let’s kick the union state pension problem down the road a little longer. And then when a politician speaks up about this unsustainable problem, let’s declare him “anti-child, anti-worker, anti-woman” and kick the can down the road a little longer.
It would be funny, if it weren’t absolutely true…
I have a better headline for that article.
California admits housing settlement was extortion and loan owners don’t deserve bailout money
In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.
Why would Jerry Brown do this unless he thought loan owner bailout money was better used elsewhere?
Sometimes I wonder what would happen if a guy like Scott Walker (current WI Governor) became governor of California. That guy has been merciless.
Walker is now under threat of a recall election this year (that will cost taxpayers $16 million), but since taking on the teacher and state employee unions and making dramatic cuts in state spending, Walker has pretty much balanced the state’s budget already (wiping out a $3.6 billion deficit), avoided mass govt employee layoffs and put the state on much more decent footing financially. Despite these fiscal improvements in very short order (2 years), the unions in Wisconsin are still fuming mad at Walker and want things overturned back to where they were before. Incredible achievements in a relatively short period of time.
I’ve been impressed with him as well. The unions must be scared to death of the example he is setting. If the Wisconsin economy booms, it will be a model for other states to follow.
Ironic that Wisconsin, long a progressive state with a motto of “Forward,” is moving forward by taking a hard tack to the right.
It’s rare to find such a high ranking politician with true conviction (other than those that are convicted and sent to jail). Walker is the type of governor that we had hoped for with Schwarzenegger.
Nice topic post today, IR. The exorbitant cost of rentals in Orange County really hampers the local labor market (I write from first-hand experience as a service business owner). It is extremely difficult for any business hiring workers for approximately $15/hour or less to find many qualified applicants, and that includes supervising and managing positions. Whether service, retail, restaurant, etc., the lower-wage workforce is extremely thin in Orange County because it’s simply too damn expensive to live here! And if I was in a position of only having the skills/experience to garner a low-paying job that isn’t even double the minimum wage, I’d move somewhere else too! This $820/month apartment featured in the article in Santa Ana is probably in one of the worst neighborhoods in the O.C., and a comparable apt. in say, Fontana, may rent for $600-650, and in Vegas, I’m guessing much lower than that! And the earning power of the worker would be literally the same no matter the area, but with a reasonable rent cost, this family might have a fighting chance to better their lives.
I feel a lot of empathy for my great service-sector employees due to the exorbitant rental cost of living in OC, but they simply can’t be paid any more for the value of the work they provide. I know the only way they can survive living in the O.C. is if they literally double and triple-up the families in their rental, or qualify to live off Section 8 vouchers or HUD housing. Not a very optimistic lifestyle either for future prosperity or finding “the American Dream”.
Coastal California cities have tried to combat this problem by providing affordable housing vouchers and other programs, but they never provide enough product to make a difference. Realistically, the way these communities provide for lower wage earners is by providing a bus system that allows them to get from place to place and get out of town when the job is done. It’s sad, but there are literally no low-wage earning families in many parts of OC, and the only people working for less than $20 per hour are teenagers, college students, and people who commute into the area. The problem of housing affordability is getting worse for rental, and the government is doing everything in its power to make it worse for ownership as well.
I think it’s repugnant that the government is even involved in providing handouts/vouchers to simply subsidize artificially-inflated rental rates to begin with. But I suppose those rental rates are simply following the lead of artificially-inflated and government-supported handouts and tax breaks for loanowners and propping up artificially-inflated market home prices. And the vicious cycle continues.
Lest we all forget, “the government” is us, the taxpayers, since government has no money without collection of revenue from all of us.
I long for a day when America is able to allow housing to return to a truly free market. Not sure if it ever will though.
It might happen. I the Federal Government can’t afford Section 8. The program will probably end…
“But I suppose those rental rates are simply following the lead of artificially-inflated and government-supported handouts and tax breaks for loanowners and propping up artificially-inflated market home prices. And the vicious cycle continues.”
That’s exactly what is happening. Each market prop and handout is a market distortion requiring another market distortion. When will it all end?
I’ve never felt that the govt was for the little guy. It may have been at one time, but not in my life time. The structure is to reward the patrons that have voluntary contributions to the system (i.e., politicians, judges, etc.). The patrons get tax breaks, seed money, tax exemptions, subsidies, and government contracts for many times unless items (non-functional and bogus studies and reports for relatives of the politicians). An example is the studies on the impact on repairing the SF/Oakland Bay Bridge which cost more than the two initial funding initiatives. Jerry as well as his precursors, want to balance the CA budget by cutting the janitors’ hours at UC and cut the home service workers hours and hourly wages. A big cost reduction of $10.50/hr to $8.50/hr for home service workers who receive neither CA pension nor CA healthcare subsidy. How is this reduction going to fix the pension under-funding? The total cost reduction effects the most people (who wants to use filth public restrooms) and reduces state spending the least, but sounds tough. The cuts are aimed at the lowest paid workers in the state government with the least organizing ability and least free time for political activity. They are unlikely to be big campaign contributors or protest rallies. Thus the short end of the trick and relegated to renter status. The other higher paid wage slaves who rent are also busy working and supporting their families, so have little free time and money to game the system. The HELOC gamers have lots of extra money from unearned and untaxed loan money to further game the system with the banksters. Do I feel stupid for not joining them.
“Do I feel stupid for not joining them?”
Sometimes, I do.
A friend of mine illustrates your point well. He had a house in the hills in Orange bought in the mid-2000s for $600K. He could have sold it in 2006 for $1.2M, but wife refused.
He took a job in Denver earlier this year selling his house for $850K resulting in a $300K net gain. He bought a new $500K 5,000 sq ft house in the Denver suburbs putting $250K down and financing the balance at 3% for 15 years.
So, although his salary is a little lower, his housing costs are much lower and his wife, a CPA, can work if she wants, but it’s not necessary to maintain their standard of living. She will be returning to work soon though, because regardless of where they live, they have three kids’ college education costs coming up soon.
At least your friend’s wife technically has the “option” to be able to work full-time or not. And if they were still living here in Orange, I’m guessing not only would they both have been working full-time since 2006, but their kids will still be needing loans and/or attending a cheaper/lesser college than desired. Sad reality of the economic circumstances now.
More alternative supply coming on board soon in South OC (Lake Forest)?: 2,379 units.
Shea Baker Development Wins OK:
http://lakeforest-ca.patch.com/articles/shea-baker-development-gets-council-ok
Interesting that they’ve decided not to build any new schools in that area, citing declining enrollment in SVUSD.
The the lenders withhold product, the builders will step into the void.
Just wait till the yield on the 10yr hits 1%, the word ”balance” will not be spoken anywhere
Single-Family Rentals Keep Pulling In Investors
By Robbie Whelan — May 16, 2012, 1:33 PM
The push is on to turn single-family rental homes into an asset class that can be bought and sold on Wall Street.
Last week, the Journal reported that publicly traded home-builder Beazer Homes had teamed up with buyout firm KKR & Co. to launch a real-estate investment trust to manage its small portfolio of single-family homes as rentals. Beazer’s REIT is still private, for the moment, but has plans for an IPO to take the company public in the coming years.
Others are jumping in as well. Los Angeles-based Colony Capital, led by distressed debt investor Tom Barrack, has also formed a single-family rental REIT, based in Phoenix, with plans to ramp up acquisitions and expand to new markets in the coming months. Since dozens of prominent investors have signaled that they plan to make big bets on the single-family rentals, it’s useful to look at how these ventures are structured.
“From the very beginning, we’ve thought of this as eventually becoming a public company,” says Justin Chang, a principal with Colony and acting CEO of Colony American Homes, the private-equity firm’s new rental REIT. “This is a big opportunity, the beginning of an asset class.”
In its early stages, Colony’s effort, which started buying up distressed single-family homes about four months ago, looks fairly similar to the strategy pursued by Beazer and other single-family rental investors.
Colony says it has raised about $750 million so far, mainly from institutional investors, and has bought about 600 homes s in Arizona, Nevada, California and Colorado. The company expects that by the end of June, it will have bought more than 1,000 distressed homes, and it plans to expand by the end of the summer to Texas, Georgia and Florida. An IPO could happen in the next 12 to 24 months.
The stats are similar, too. Colony is underwriting their purchases of distressed homes for rental at cap rates of about 7-9%. What that means is each house Colony American Homes buys is expected to produce an annual rental income equal to about 7% of the house’s purchase price. That is slightly higher than the 5-6% range of yields that most apartment operators in strong apartment markets are making today.
Assuming that rents and home values will both increase about 3-5% per year going forward, and as Colony is able to put some leverage on the homes it buys, the company figures that it can give returns of 15% or higher to its investors. These are similar to the types of projections from other single-family rental investor groups, including Beazer.
Colony could differentiate itself in two areas.
First, the thorn in the side of single-family rental investors has been the issue of management. Apartments work as an asset class because they are comparatively easy to manage: they share amenities and don’t require the kind of individual attention from plumbers or other fix-it workers that homes do. In the past, investors have typically had to employ a third-party property manager to handle their homes.
Colony is trying to solve this problem by bringing management in-house. Earlier this year, the company acquired Vineyard Services, a Phoenix-based property manager, renamed it, and made it the official manager for all of CAM’s homes. Paul Fuhrman, another principal at Colony, estimates this will add a few percentage points (between 1% and 2.5%) to the yields they are able to offer investors.
Still, even with what they hope is a relatively efficient management structure, Colony is planning to spend about 50% of rent revenues on expenses for each house. Typical apartment operators only spend about 35% of rent rolls on expenses.
The other main difference for Colony is that the company has access to thousands of single-family properties that might work as rentals through its deals with the federal government. Colony has bought distressed loans valued at more than $4 billion in seven separate transactions with the Federal Deposit Insurance Corp. over the last few years. Hundreds of these loans have been distressed single-family home loans, which Colony now owns in partnership with the FDIC. Mr. Fuhrman said putting those homes into the new REIT could be an option.
IR,
I must have missed your post in which you explained the significance & methodology of your “Market rating” stat. Can you provide a link?
Here was the original post: OC Housing News market rating system: Where is it safe to buy?
Also, I have incorporated much of it into this site page: OC Housing News monthly market report and newsletter.