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Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week

Speaking of housing, we’re supposed to forget about the fact that the banks committed the largest consumer fraud in history and then paid the meager penalties for it with other people’s money, because we’re in a housing “recovery” now. Let’s forget the past, and look forward, and check out this housing boom, ay?

It’s tiring to have to keep explaining this, but the housing “recovery” comes from two factors. One, banks have intentionally kept a lot of their inventory off the market. A LOT. Millions of homes. This, combined with the underwater homeowner catch-22 of not being able to list their home when they owe more on the mortgage than it’s worth, has led to artificially constrained supply. Then, on the demand side, institutional investors are scooping up homes in distressed sales and short sales, usually for cash, which has propped up sales. So artificially low supply and investor-led demand means higher prices. It’s really simple.

And if you don’t believe me that this is taking place, here’s another reminder:

Investors buying foreclosed U.S. homes might have less than two years to accumulate properties as competition and rising prices shrink the pool of cheap assets, according to Blackstone Group LP (BX), the largest buyer.

“Prices are starting to move faster,” said Jonathan Gray, global head of real estate for Blackstone, which has invested about $1.5 billion this year in foreclosed homes. “That’s one of the risks that emerge as more people like us get into the space and as individual homeowner confidence grows. Frankly, buying a home today is pretty compelling.” […]

Blackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.

The investors have all started competing with each other, and suddenly the attractive option of purchasing homes on the cheap and eventually selling them has become less attractive. This is especially true if one firm is buying $100 million in homes EVERY WEEK.

The idea here is to rent out the single-family units until they appreciate enough in value to sell. Also, they may try to securitize the steady stream of rental revenue to lock in the profits. I’ve discussed repeatedly why this may be a pretty terrible idea. But everyone’s so happy to see rising home prices that they just pop the champagne corks.

A couple months ago we heard about a $1 billion Blackstone investment just in foreclosed homes in Tampa Bay, so none of this is surprising. But it gives you a sense of the scale here. And remember, this is just one firm.

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David Dayen

David Dayen