As if rising interest rates weren’t enough of a headwind for home sales, banks are increasingly foreclosing on delinquent mortgages. If enough of this shadow inventory hits the market, prices could fall. That would be bad for the banks, but good for the new single family home real estate investment trusts (REITs).
After the housing bust, mortgage lenders were in a tough spot. They had so many delinquent mortgages that the market couldn’t handle the onslaught of sales that mass foreclosures would cause. So, they did nothing. That created a shadow inventory of homes living in a sort of limbo state.
Blackstone swooped in and bought thousands of homes from the banks, quickly building itself into the largest owner of single family homes in the United States, with around 30,000 properties. Other companies jumped in, too, though not on the same scale.
From a big picture perspective, however, institutions quickly bought up a lot of existing property. That cleared out much of the market’s overhang. And, as the market stabilized, sales have begun to pick up. New construction, however, has been the big beneficiary since institutions cleared out the old stock.
Now That Things are Better
However, there are still a lot of homes living in limbo on bank balance sheets. Now that the housing market has picked up, banks have again increased their foreclosure activity. After months of declines, April’s foreclosure rate moved higher. From the bankers’ point of view, it makes sense to sell while the getting is good.
If too many banks do the same thing, however, they will flood the market with properties. That, in turn, will cause prices to stall or, worse, fall. Add in the fact that interest rates are heading higher, making buying a home more expensive, and the opportunistic move by the banks could turn out to be a second buying opportunity for the companies institutionalizing the single family home market.
Blackstone is the clear giant in the space. However, the company isn’t a pure play. It is a broadly diversified asset manager. It is good at what it does, however, so investors might find the stock of interest. Still, for those seeking direct exposure to single family homes, there are more focused options.
Silver Bay Realty Trust Corp (NYSE:SBY) and American Residential Properties Inc (NYSE:ARPI) both focus on owning single family homes. Neither has a long trading history, since the older of the two only came public late in 2012.