This land rush has been ascribed to different factors, including people leaving rental apartments in big cities to move to the suburbs or exurbs; people suddenly deciding to start families; people – especially those that benefited from the crisis and made a killing with the Fed’s schemes – buying a second home outside the city; and people buying a home in a hurry without selling their old home first, hoping for a higher price later.
And this is happening during a massive unemployment crisis; a time when 7% of all mortgages have been moved into forbearance; a time when 17% of the FHA-insured mortgages are 30 days or more delinquent, though many of those loans have also been moved into forbearance and put on ice.
Clearly the housing market has split into two, with one part being red hot, and the other part crumbling before our eyes.
But there is something else going on too: A surge in big money into single family houses as an asset class.
This is now taking different forms: There are the buy-to-rent companies that grew out of the Financial Crisis. And there are companies that are now building new houses specifically as rental houses; and there are the iBuyers – companies that buy houses to then sell them, a business model that is intended to replace the brokerage model though it has done nothing but lose money, but no problem. And then there are companies buying houses and leasing them back to the former homeowners so that they can resolve a mortgage delinquency without having to move.
And these companies have raised many billions of dollars since April in the capital markets that have gone totally nuts.
Homebuilder ResiBuild was set up specifically to build houses as rental properties. The Atlanta-based company is now raising $1.2 billion, including $400 million in equity and $800 million in debt, to build 5,000 houses with three or four bedrooms and a two-car garage that rent for about $1,850 a month. And it plans to manage those rentals.
Co-founder Jay Byce comes out of Colony Capital, which got into the buy-to-rent business that the Fed so hotly encouraged during the mortgage crisis in 2011 and 2012, where these companies with cheaply borrowed billions of dollars swooped in and bought tens of thousands of houses out of foreclosure to then rent them out.
Jay Byce told Bloomberg: “We were already seeing both boomers and millennials move to rental communities because they wanted more room and a low-maintenance lifestyle. Covid has accelerated the shifts that were already happening.”
The theory is that people want more space and live in the suburbs but want to rent instead of owning. (...)
Despite the malaise in the big-city rental apartment sector, the buy-to-rent companies, such as Invitation Homes, have reported record high occupancy rates and on-time rent collections that are roughly in line with pre-Covid averages.
Invitation Homes said in an investor presentation in September that it would be getting into the sale-leaseback market – buying single-family houses from homeowners and leasing them back to the former homeowners, who would do this to cash out without having to move.
The sale-leaseback method of raising cash has been practiced for a long time by owners of commercial property, airplanes, equipment, etc. But in terms of single-family houses, it’s fairly new.
But now there is a different angle to the sale-leaseback model, that is totally new: 7% of the mortgages are in forbearance and others are delinquent but are at the moment protected by a moratorium on foreclosures. These homeowners will eventually have to deal with reality, which could mean a forced sale or foreclosure.
But with a sale-leaseback, they could sell the home and lease it back, so they’d become renters and wouldn’t have to move. Startups are getting into this deal, raising lots of money to do this.
In other words, companies are lining up to take advantage of the mess that will ensue when the forbearance period and the foreclosure moratorium end, which is when these mortgages become officially delinquent and face foreclosure – and it will produce another wave of homes being taken over by investors and becoming an asset class.
by Wolf Richter, Wolf Street | Read more:
