The economic recovery from the global recession is starting to pick up as unemployment goes down and consumer confidence increases, but when it comes to the U.S. housing market, some regions are recovering quicker than others.
In first quarter 2013, nearly 1.5 million single-family homes in the United States were at some stage of the foreclosure process, according to data from RealtyTrac. This number is up by 9 percent when compared with foreclosures in first quarter 2012, but marks a 32 percent decrease from the peak of the recession, when 2.2 million properties were foreclosed on in December 2010.
The rampant foreclosures that were happening across housing markets in the United States forced many homeowners to go back to renting. With apartment construction slowing due to the economic downturn, the limited new supply and increasing demand for rental properties have caused apartment rents to increase annually since midyear 2010, with a 9.5 percent gain during 11 consecutive quarters, equating to a 3.5 percent annualized growth to $1,093, according to IREN’s coverage of Marcus & Millichap’s Second Quarter Apartment Outlook. Annual rental growth equates to lower cap rates and greater revenue for investors in multifamily properties, as the national average monthly rent increased to $1,121.
As a renter and hopeful future home buyer, this statistic is discouraging — but institutions that invest in apartment housing have cause to celebrate, as decreases in homeownership this past quarter created 300,000 new renting households.
Even as new renters are entering the multifamily residential market, single-family homes are becoming more affordable in many markets. RealtyTrac recently released a list of the top 15 cities for purchasing bank-owned fixer-uppers for a bargain, the top three being Detroit, Chicago and Cleveland. As a result, many potential buyers are considering beat-up single-family homes both an investment and a place to call home.
It is notable that institutional investors also are taking another look at distressed single-family homes as a risky market with untapped potential. The Blackstone Group was the number one buyer of single-family homes last year, spending $1.5 billion on 10,000 foreclosed properties in the United States, according to Bloomberg. Also looking at the single-family home market is Colony Capital, which has a target fundraising goal of $2 billion for a fund that will acquire distressed single-family homes. It is expected that the fund will have invested $1.5 billion in single-family homes across the United States before the end of next year.
In the past, institutional investors have shied away from investing in single-family homes because the management is much more hands-on and it takes a long time to build a portfolio of properties, but investors have found various methods for making this investment with less risk, such as acquiring a portfolio of homes from local investors or property managers, rather than making individual acquisitions.
As wallets start expanding and individuals look into buying houses for the first time, or downgrading to a rental, house hunters and investors have more options than before.
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Sara Kassabian is a reporter with Institutional Real Estate, Inc.
