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Single-family homes: the new US real-estate asset class

Analysts tell Euromoney that the model of buying real estate owned (REOs) to rentals is suited to the single-family home market and could become an asset class


In its January white paper on the US housing market, the Federal Reserve laid out its proposal for a solution to the foreclosure backlog plaguing banks and the government-sponsored entities (GSEs) – tax incentives to investors to buy up portfolios of REOs (properties that have been foreclosed upon and are now owned by the banks or the GSEs) and turn them into rental properties.


There are an estimated 500,000 REOs in the US, and that is likely to increase during the next few months as legal impediments to foreclosure resulting from investigations into robo-signing and foreclosure practices are worked through.

In total, there are 1.9 million units in the US in a state of foreclosure.


One analyst says he expects the Federal Housing Finance Agency that oversees Fannie Mae and Freddie Mac to start issuing investor programmes within the next few months.

 
 “It has reached the point where the blame and finger-pointing
around why the real-estate market is in this mess,” 
- Stephen Kim, equities research analyst at Barclays Capital


Meanwhile, Stephen Kim, equities research analyst at Barclays Capital, says the proposed programme will offer some solution in clearing the foreclosure backlog.


“It has reached the point where the blame and finger-pointing around why the real-estate market is in this mess has now shifted to a consensus that there is value in getting these properties off the market,” says Kim.


He adds it would not be palatable for large institutions to buy up single-family homes on an industrial scale.


“Rather, we will find a more fragmented structure of entrepreneurial firms largely with private capital and individuals and groups getting together to take down this inventory,” says Kim.


One company that is buying inventory to rent is California-based Waypoint Real Estate. In January, $6 billion private equity firm GI Partners announced it would be providing funding to buy at least $250 million dollars and up to one billion in value of distressed houses with Waypoint. Waypoint buys single-family homes at auction from banks and renovates the properties for the rental market.


One analyst says the model of buying REOs to rentals is suited to the single-family home market, and believes it could become an asset class.


For the full story, don’t forget to check out ‘Rentals – the solution to the foreclosure backlog’ in the February edition of Euromoney magazine.


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