Numbers don’t lie: the rich are getting richer, and they’re using their money to increase their U.S. housing real estate portfolios. The rest of the country, on the other hand, is getting poorer, and has been priced out of the U.S. housing market, being forced to rent the American dream.
While U.S. housing prices are still down roughly 23% from their 2006 pre-recession highs, they’ve increased 16% since the beginning of 2012. This is more than enough to price those who have the income to pay a mortgage and desire to own a home out of the market—not so much as to deter investors (institutional and individual) from aggressively adding to their burgeoning real estate portfolio, though.
In fact, many first-time home buyers are being bid out of the market because of demand from investors. First-time home buyers accounted for just 28% of purchases in September; that’s a substantial decrease over the 30-year average of 40%, and a number that real estate professionals and economists consider to be ideal. These depressed numbers are the new reality; first-time buyers made up just 28% of all purchases in August, a bit worse than the 29% recorded in July. (Source: Mutikani, L., “U.S. existing home sales fall, price appreciation slows,” Reuters web site, October 21, 2013.)
For the not-so-average American, it’s a U.S. housing boon. Investors (those who purchased 10 or more properties in the last 12 months) accounted for 14% of all residential sales in November; that’s up three percentage points both year-over-year and from the previous month. Incredibly, all-cash sales climbed to 49% from 40% in August and 30% one year earlier. (Source: Howley, K.M., “‘The little guy can’t win’: U.S. families stuck renting as big investors pay cash to snap up homes,” Financial Post web site, October 24, 2013.)
Institutional buyers purchased 25% of properties sold in Georgia and Nevada, 17% of properties in Missouri, and 16% of homes in Arizona. In a nutshell, deep-pocketed investors have been snapping up rental homes in the areas hardest hit by foreclosures; squeezing out families looking for a place to live.
And by deep pockets, I mean deep pockets. The Blackstone Group L.P. (NYSE/BX) has spent $7.5 billion over the last two years acquiring 40,000 houses, creating the largest single-family rental business in the U.S. American Homes 4 Rent (NYSE/AMH), the country’s second-largest single-family home landlord, has spent more than $3.0 billion to purchase about 20,000 homes in the last year. (Source: Hallman, D. and Berman, J., “Here’s What Happens When Wall Street Builds A Rental Empire,” Huffington Post web site, October 25, 2013.)
Where is the average American investor who cuts the grass and shovels the snow on their rental property to turn? Many investors may not be able to get on the U.S. housing ladder, but there are still a large number of areas they can consider for parking their investment dollar.
Aside from The Blackstone Group, America’s biggest landlord, there is Apartment Investment and Management Company (NYSE/AIV), one of the nation’s largest apartment owners/managers.
If you want to get your hands dirty, home improvement retailer The Home Depot, Inc. (NYSE/HD) is up 22% year-to-date, while Lowes Companies, Inc. (NYSE/LOW) is up more than 40% year-to-date.
Thanks to rising home prices, mortgage rates, stagnant wages, and high unemployment, U.S. housing affordability isn’t possible for the average American. And as long as the Federal Reserve keeps the tap on its easy money policy flowing, the U.S. housing market will continue to be out of reach for most Americans.
So long as new and existing home sales remain strong, regardless of who’s actually purchasing them, U.S. housing stocks, including real estate investment trusts (REITs), home improvement stores, and home appliance stocks, will continue to offer investors excellent opportunities for growth.
This article My Favorite Picks to Ride the Recovering U.S. Housing Market was originally published at Daily Gains Letter
