homesmillbrae.com » Hedge Funds

Home Builder Stocks Soar as Housing Battles Back

Tue, 09 Apr 2013 20:42:54 +0000

But not all are bullish on the builders, especially those that concentrate in the formerly hard hit housing markets like Arizona and California. Inventories are low in these states and prices are surging largely because of huge investor demand for foreclosed properties. With a strong, new single family rental market, investors rushed in and are cashing in on rents, but some say that demand is already starting to ease.

“Despite multi-billion dollar buying sprees by well-funded Wall Street hedge funds, real estate investors bought fewer properties in 2012 than they did in 2011, which was a record year for investors. Investment-home sales declined 2.1 percent to 1.21 million from 1.23 million in 2011, but those sales had been well under a million during the market downturn,” according to a new survey from the National Association of Realtors.

Meanwhile, previously surging single family rents are flattening. Nearly 4 million more single-family homes have been added to the rental market since 2005, according to Trulia.com. Supply has finally caught up with demand, with single family rents up just 0.1 percent in March from a year ago. That has housing bears roaring again.

“In Phoenix—like Las Vegas, Florida, the Inland Empire, Central Valley et al—we now have a rental supply glut,” said Mark Hanson, a California-based housing and mortgage analyst.

“Wherever the institutional money has gone in and ravaged is high risk for housing investment or building. These regions have become highly volatile speculative regions in which prices can rise 20 percent one year and fall 15 percent the next. The insti’s have turned these markets into something I have never seen before…more like high-beta, speculative, volatile tech stock markets than housing markets.”

Prices are soaring in these markets because all-cash investors are finding very little left to buy. Regular buyers can’t compete with investors, so they are heading to the home builders. The builders were caught off guard, because they did not foresee this dynamic. Now they are rushing back to meet demand, while having no idea how long that demand will last. Why? Because when home prices get high enough, investors could cash out, pushing inventories higher and prices lower.

The birth of the new asset class, the REO (bank owned foreclosures) to Rent model, put a floor on home prices and reduced distress dramatically in the market. It also, however, added a new volatility to housing for years to come.

If investors hold and rent the homes, recovery will continue apace, but if sentiment shifts, and investors see bigger returns in sales than rents, the game could turn quickly.

RealtyCheck producer Stephanie Dhue contributed to this report.

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100627586

Beyond the Numbers, Confidence Returns to Housing

Wed, 27 Mar 2013 06:59:07 +0000

While first-timers are getting more interested, current homeowners are getting less interested, according to the Campbell survey. Meanwhile investor interest in housing rose to a four-month high, accompanied by a rise in sales of distressed properties. Investors, who largely buy all in cash, have been the main competition for regular home buyers, and as big hedge funds and private equity purchase lower end, distressed homes in bulk, that pushes prices drastically higher. Witness a 23 percent jump in Phoenix home prices in January, according to the latest reading from SP/Case-Shiller.

While the number of distressed homes is falling, the remnants of the housing crash are still weighing on the recovery. There are still 5.1 million properties where the owner is either delinquent on the mortgage or the home is already in the foreclosure process, according to a new report from Lender Processing Services. As banks ramp up the foreclosure process, following delays due to processing fraud over the past few years, more distressed properties will come to the market. That may ease some of the price gains, although investors, still reaping rental rewards, seem ready for all of it.

(Read More: No Money? No Worries. Home Lenders Ease Rules)

What remains to be seen is for how long those rents will stay strong? With more Americans looking to buy and souring on renting, rent rates could start to come down. In addition, new supply of rental apartment buildings will be hitting the market in force over the next two years, as developers have been increasing multi-family housing construction.

(Read More: Defying Gravity: Miami Condos Soar Again)

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100592690

Defying Gravity: Miami Condos Flying High Again

Wed, 20 Mar 2013 11:26:48 +0000

These cash-heavy buyers are allowing developers to require anywhere from 20 to 80 percent down, which appeases bank and private lenders alike.

“It’s much smaller inventory, which is holding the price point, and further, the deposit structure is much more beneficial to the developer at this point, so we’re back,” said PMG’s Maloney.

Maloney has sold 100 of the 190 units he plans to build in his “Echo” development and that is without even breaking ground. The rest he hopes to entice with flash and fantasy, which is exactly what Miami is all about.

“I believe in the future,” said Argentinean Antonio Aguirre at the Echo party. “The prices are going to come up faster, so today is a great time to buy.”

(Read More: No Money? No Worries. Home Lenders Ease Rules)

At Marina Palms Yacht Club and Residences in North Miami’s Aventura, broken-down boat slips frame two new condo sites, one of which has the concrete beginnings of a first floor that has been standing idle for six years, since the developers went bankrupt.

“There’s an enormous demand. We actually didn’t think the demand would be as strong as it is today,” said Neil Fairman, of Miami-based The Plaza Group, the project’s developer.

The Plaza Group, along with the DevStar group, are getting ready to put up two 25-story towers with a combined 468 units, starting in the $600,000s. The project will include a full-service, 112-slip marina. Half the units in the first tower sold in just the past two months. Fairman said he already has financing proposed from both banks and private hedge funds.

“There’s a lot more scrutiny, they’re going to scrutinize the buyers a great deal, they’re going to scrutinize the developer’s track record. They want people with experience, they want people with hard deposits,” Fairman noted.

Article source: http://www.cnbc.com/id/100568846

Home Builders Turn to Rental Apartments

Fri, 25 Jan 2013 20:30:41 +0000

“This increase in new construction is congruous with the strength in market fundamentals – strong performance is serving as a catalyst for new development,” said Ryan Severino of Reis Inc. “If anything the amount of new completions that have been delivered up to this point is low relative to the strength of the apartment market. “

There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.

“We are still woefully short of what’s going to be coming in terms of demand,” says Buck Horne, a housing analyst at Raymond James. “Lennar is going where the demand is going to be. They’re going where they know they can make money.”

Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.

“You’ve got to be very selective about your locations,” warns Miller. “We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place.”

Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.

Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.

“In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later,” says Miller.

Article source: http://www.cnbc.com/id/100407898

How Rising Home Prices May Actually Stall the Recovery

Sat, 01 Dec 2012 03:49:48 +0000

Home prices have been rising steadily for the past several months, but some fear the rapid increase could actually start hurting the housing recovery.

The reason is that the rise in prices is mainly due to investors, mostly large hedge funds, that have been swooping into the most distressed markets and inhaling properties as fast as their plentiful cash will allow. They are turning those properties into rentals, and getting anywhere from 8 to 12 percent returns on their investments, thanks to still hot demand. The trouble is, as home prices rise, those returns shrink.

“The worry with investment demand is that the very recovery in prices that it is driving will eventually reduce rental yields and undermine the investment case,” warns Paul Diggle of Capital Economics.

Today’s housing recovery, much like the recent crash, is like no other. While home prices fell nationally for the first time in history, they are recovering locally at drastically different paces. Some markets are still in the red, while others are surging forward with double-digit gains. Those that are seeing the biggest jumps are largely the markets that saw the deepest losses. Witness Phoenix home prices up over 20 percent from a year ago on the SP/Case-Shiller home price index. The huge influx of investors there shrunk inventories and created bidding wars, hence the price gains.

But even outside those hot markets, this national housing recovery is dependent on investors, who are largely all-cash buyers. The mortgage market is still too restrictive to support the kind of bulk-buying that needs to occur, and many potential buyers either lack the credit scores or the confidence to jump in. Another 14 million borrowers still owe more on their mortgages than their homes are worth, according to Zillow, and are therefore unable to move.

(Read More: Foreclosure Discounts Drying Up)

Five million properties are either in the foreclosure process or their owners are delinquent on their mortgages. That means foreclosures will remain elevated for the foreseeable future, and investors will be necessary to absorb them. Another concern is that home prices are rising faster than income, which could push potential owner-occupants away just as they were starting to dip their toes in again.

The risk of sales dropping as investors leave is obviously higher in the markets that saw the biggest drop in home prices during the crash, again, like Phoenix. Other markets, such as Chicago, Atlanta, and even parts of Florida, where prices are still weak and distress is still a large share of the market, are still seeing improved sales, as investors shift their sights and cash to more yield-worthy ground.

Sector Watch – U.S. Home Builders

Toll Brothers
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DR Horton
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Hovnanian Enterprises
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PulteGroup
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Ryland Group
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Lennar Corp
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Beazer Homes USA
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Meritage Homes
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KB Home
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Questions? Comments?

Follow me on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Article source: http://www.cnbc.com/id/50026661?__source=RSS*blog*&par=RSS

Property Flippers Are Back as Housing’s New Middle Men

Tue, 16 Oct 2012 07:07:26 +0000

Who can forget the heady days of the housing boom when property flippers would follow condo developers around like hungry wolves, waiting to pounce on new projects before one grain of earth had moved?

Property auctions for single family homes weren’t any different, as novice buyers were scooping up multiple properties only to flip them for a profit in a matter of weeks.

Those days are gone; the price appreciation is gone, and the funding is gone…but apparently the flippers are back. Some of them never left. Close to 100,000 properties were flipped in the first six months of this year, according to RealtyTrac, which defines flipping as a home bought and sold within six months. That is a 25 percent jump from a year ago. But flipping is not what it used to be.

“There is this kind of middle man investor who is doing the flipping,” says RealtyTrac’s Daren Blomquist, who ran a webinar last month titled, “Why Property Flipping is Flying High in 2012.” Blomquist says the difference for today’s flippers is that they must add value to the home before selling, because price appreciation alone won’t net the profit they seek. That means rehabbing, which can be pricey, depending on the condition of the property. Many of the distressed homes now that flippers seek have been either ransacked by former owners or left vacant and untended for years.

(Read More: How to Play the Housing ‘Boom’)

“You don’t see any of that highly speculative flipping where it’s solely reliant on the home prices going up for the flip to work,” says Blomquist, which is why many flippers are middle men. They flip to other investors in order to get the profit they need. “It’s probably easier to flip to another investor because this person is an experienced buyer and should have their ducks in a row in terms of being able to finance the property, if not pay up front in cash.”

Large-scale, big money investors, like hedge funds, have flooded the single family real estate market, looking for rental properties that will produce good yield. While some have their own teams attending foreclosure auctions and doing the rehabilitation and remodeling, many would rather buy turn-key products, even if the price is slightly higher. The “pure” property flip appears to be less popular, although in some stronger markets it is certainly still happening.

(Read More: Cities With the Most Affordable Homes)

“I have seen a return of flipping, but only at the individual or small investor level. In some cases, these investors are targeting larger, institutional investors as potential buyers,” says Rick Sharga of Carrington Mortgage Holdings, a large fund investing in single family rentals. “I haven’t seen institutional investors doing much flipping (although they will occasionally sell off a few properties from a pool if the homes don’t fit their business model).”

Investors planning a REIT would not be flippers, Sharga notes, as what they need is a large pool of rental homes delivering the cash flow a REIT would require. Most of the larger investors are paying market price (sometimes a little less, sometimes more), which makes profitable flipping difficult.

(Read More: A Risky Lifeline for Seniors Is Costing Some Their Homes)

Until the rental market chills and the housing market shows strong price gains, pure property flipping will not be nearly as lucrative as it once was. On the positive side, continued strength in the single family rental market and the ensuing large investors interest offers smaller investors willing to do the dirty work a large pool of cash-heavy buyers.

Sector Watch: Construction General Building Materials

The Home Depot
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Lowe’s Companies
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The Sherwin-Williams Company
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E. I. du Pont de Nemours and Company
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Apogee Enterprises
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Questions? Comments? And follow me on Twitter @Diana_Olick

Article source: http://www.cnbc.com/id/49419503?__source=RSS*blog*&par=RSS

Buy Foreclosures With Your IRA

Wed, 14 Mar 2012 03:44:59 +0000

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While home prices still haven’t hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market.

Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That’s because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today’s market.

“Here in Reno, prices are half of what they were at the top of the bubble, so, yeah, it might go down a little bit more but I don’t think it will go to zero, like some of my stocks have gone to zero,” says Terry Vander Ploeg, who invested $105,000 in a Reno foreclosure.

The catch is that you have to do it through what’s known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

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Article source: http://www.cnbc.com/id/46718050?__source=RSS*blog*&par=RSS

Deal saves Blockbuster, some Bay Area stores

Fri, 11 Mar 2011 05:51:14 +0000

Blockbuster lives to fight another day, and so do a number of its stores in the Bay Area.

But others will be closing their doors next month, despite the movie-rental chain’s last-minute reprieve from liquidation.

A $229 million deal to turn Blockbuster over to a group of hedge funds and Blockbuster bondholders was agreed to by a New York bankruptcy judge, after disgruntled creditors, including movie studios and Yahoo, signed on to a revised deal.

That means 17 Blockbuster stores out of 24 listed in the inner Bay Area will stay open, at least for a while longer. “We’re fine, we’re fine,” said a sales clerk in the Alameda store.

Of those scheduled to shut their doors in April, three are in San Francisco – on Church Street, Geary Street and 16th Street in Potrero Hill – and one each in Albany, San Leandro and Alamo.

But there could be more. The company, once the world’s largest movie-rental outlet, with 9,100 stores, reported a loss of $64.8 million in the last quarter. Under the purchase agreement signed with the hedge fund group last month, Blockbuster said 609 of its remaining 3,300 U.S. stores were to be shut as part of an “initial liquidation.”

A sales clerk at the Daly City Blockbuster, not currently on the list, said she’d been told hers might close in November. On the other hand, the Pinole store, which is on the list, might be re-evaluated, a sales clerk there had heard.

To what extent the new owners are re-evaluating remains to be seen. Having made what is called a “stalking horse” bid for the Dallas company, they might be looking to flip the property for a higher price.

Asked what she’s going to do in April, a sales clerk at the Church Street store replied, “Stand on a street corner, hope people feel sorry for me and give me money.”

Coincidence?: Turns out the scheduled auction of the Westin San Francisco, which we noted in Thursday’s column, is off. The creditor seeking the foreclosure suddenly got the $22 million loan owed by the hotel’s owners, a Goldman Sachs real estate entity and a Dallas private-equity firm.

“The borrower paid off the loan in full (Wednesday) night,” said an attorney for the Carlton Group, a foreclosure and debt restructuring firm, after it had posted the auction notice that morning on behalf of its client, Deutsche Bank.

All this occurred after we made inquiries – which got the silent treatment – and a small item appeared in the Wall Street Journal.

News of the payment was e-mailed to interested parties Thursday morning, and showed up in bold capital letters on the Carlton Group’s website, over the original notice of the auction.

Dare we say The Chronicle gets results?

Cold decaf: Remember how hard Peet’s Coffee Tea tried to buy Diedrich Coffee, the Castroville (Monterey County) roastery and chief supplier to the fast-growing single-cup coffee market?

The Emeryville chain thought it had the $226 million deal closed in November 2009, when along came Green Mountain Coffee, known for its Keurig single-cup coffee dispensers and K-cup portion packs, and snatched it out of Peet’s hands with a better offer.

Adding insult to injury, the Vermont company on Thursday signed a partnership deal with Starbucks, under which the latter’s coffee (and its Tazo tea) will be sold in Green Mountain’s K-cups portion packs at Starbucks’ 11,000 outlets, plus supermarkets, drugstores and other retail establishments throughout North America.

Instant reaction: Green Mountain shares up 41 percent at the close of trading Thursday; Starbucks up 10 percent.

Peet’s, down 11.5 percent.

Good trade: Nice numbers for California’s exporters. They had the best January ever, according to trade figures released Thursday by the U.S. Commerce Department.

The state’s $11.75 billion worth of exports marked a 14.5 percent increase over January 2010, driven by both manufactured goods, and especially raw materials and agricultural products. This was in line with U.S. exports which rose to record levels. But other states did even better, with California’s share of the nation’s export pie falling, according to an analysis of the Commerce Department data by San Rafael’s Beacon Economics. (sfg.ly/iiE5jW)

Future prospects may depend on the price of oil, said Jock O’Connell, Beacon’s international trade expert.

“Economies tend to go wobbly and global supply chains start experiencing serious palpitations whenever oil futures float much over the $100 a barrel mark,” he said.

Job grievance: It’s not exactly hi-ho, hi-ho, and off to work we go these days in the Golden State.

According to a just-released survey of “work environment well-being” in the nation’s 50 states, California dropped from sixth to 21st place. No. 1: South Dakota, followed by Nebraska, Montana, Wyoming and North Dakota. Unsurprisingly, “work environment well-being” was down nationally.

“Healthy behavior” and “emotional health” improved, however, while “physical health” stayed about the same in the latest Gallup-Healthways Well-Being Index, which measures good feelings in a number of categories.

The most well-being state overall, according to its rolling survey of 1,000 Americans: Hawaii. Other states feeling pretty good include Alaska, Colorado, Minnesota and Utah. California comes in at No. 18. (sfg.ly/hPBymj).

Blogging: www.sfgate.com/ columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.

This article appeared on page D – 1 of the San Francisco Chronicle

Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/03/10/BU5C1I7HHK.DTL