By now, if you’re looking to purchase a home in Boca Raton, you know how skimpy the available inventory is. It’s down 40% from a year ago, leaving less than a 4 month supply of homes on the market.
But the prevailing notion from most realtors has been that the glut of bank foreclosures would soon be released. This would serve to keep Boca Raton home prices lower by increasing the supply of available homes.
Foreclosures are purchased by private equity funds.
Well, guess what? They were wrong. The majority of these foreclosed homes in Boca and in most other cities around the nation are being gobbled up in bulk by private equity funds. And they’re not being resold. Instead, they are moving back into the market as rental properties.
Blackstone group, has already purchased 24,000 homes around the nation, spending more than $4 billion. The fund adds thousands of homes each month to its burgeoning portfolio. BlackRock, Colony Capital and Haven Realty Capital, among others, also continue to purchase these REO homes in bulk from banks.
As a result, the housing market, far from being inundated with too many homes, is instead, experiencing a drought. And, as we all know, scarcity breeds higher prices. That may help to account for the 28% increase—and climbing – that we have seen in Boca Raton home prices since last year at this time.
More renters in single family homes.
According to Bloomberg Business Week, the percentage of single family homes occupied by renters has increased from 30% in 2005 to 35% today. The population that fills these rentals comes from families whose credit does not allow them to purchase a home, often because of short sales or foreclosures of their properties; young buyers who are frozen out of the market because cash buyers are purchasing a large percentage of homes priced under $300,000; and young people fresh out of school who want a house but can’t yet afford a down payment.
The funds and large banks are bundling these homes into a new asset class, similar to those formed by commercial real estate bonds and mortgage bonds. It is very possible that those same families who can’t afford to purchase homes will be investing in Real Estate Investment Trusts (REITs) that own the very homes they are renting.
Marc Jablon, The Jablon Team
RE/MAX Complete Solutions