Barely six hours after billionaire investor Warren Buffett said that if he could he’d like to buy “a couple of hundred thousand single family homes”, the regulator of Fannie Mae and Freddie Mac put about 2500 of theirs up for sale.
It is the next step in the government’s REO (bank-owned) to rent program; the plan, announced earlier this month, is designed to help Fannie and Freddie unload thousands of foreclosed properties weighing on their books. Fannie Mae alone owns more than 100,000 repossessed properties.
“This is another important milestone in our initiative designed to reduce taxpayer losses, stabilise neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace,” said FHFA acting director Edward DeMarco in a press release.
While the prequalification phase began several weeks ago, investors can now move to the next phase, where, if accepted by proving financial capacity and experience, they can get access to the properties for sale. The bulk of the properties are in the most distressed markets, such as Florida, parts of California, Phoenix, AZ, and Las Vegas, NV. Atlanta, GA, however, has the highest number in the mix, 572 properties making up 23 per cent of the total up for sale. Atlanta housing was hit hard by the recession and high job losses. Just 17 per cent of the properties are vacant, so investors would largely be getting assets with existing cash flow.
As these first properties hit the market, there is no shortage of investors ready to scoop them up. Rental demand is still surging, and rents continue to rise, despite record high affordability and record low mortgage rates. Nearly 47 per cent of all closings in January were of distressed properties, according to a new survey from Campbell/Inside Mortgage Finance, and investors now make up nearly a quarter of all buyers, according to the National Association of Realtors.
As banks start to ramp up the foreclosure process again, after a year of delays following the “robo-signing” scandal, more properties will be repossessed and put up for sale; investors are flocking to the deals, largely using all cash, as they get into increasingly competitive situations. Even owner-occupants (non-investors) are turning more to cash, as credit is still tight.
“Despite near record low mortgage rates, homebuyers are finding it very advantageous in the current housing market to shop with cash. And low returns on money deposited in banks as well as mortgage approval hassles also are pushing homebuyers to consider all cash transactions,” according to Campbell/IMF. “Between last October and January, the use of cash by current homeowners purchasing a new principal residence surged from 30.8 per cent to 34.1 per cent.
Critics of the bulk REO to rent program say that giving large investors with hoards of cash bulk deals squeezes out smaller investors who might do more improvements to the properties and then turn around and sell them at higher prices, thereby increasing overall home values. Investors in the FHFA program are required to hold the properties and rent them for “a specified number of years,” according to the agency’s initial announcement.