Markets & EconomyRentals

How REO properties are changing the post-foreclosure landscape

Are there more renters looking for a place to live or homebuyers stuck with a rental property?

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In the past decade, the housing market has shifted dramatically. Since the housing bubble burst and the results trickled down in the years following, not only did the ability to own a home shift, but the desire to do so changed, as well.

REO, or real estate owned, properties have remained an accessory of the housing industry since the record-breaking foreclosure rates of 2010. Investors, both small and large, purchased and often rehabbed homes to sell or rent.

Although the trend of purchasing REO properties in bulk to turn into rentals is slowing, it’s still very much present in the modern housing market.

Homeowners who are getting displaced by foreclosure and Americans who are not ready to buy a home are flooding the rental market at the same time, driving up demand. Given the landscape, are investors coming to the rescue to provide much-needed supply to high-foreclosure communities — or are homebuyers struggling to realize their American dream?

“Whenever I see an REO, I see a family who wants to live in a house. So the idea that when a community has whatever number of homes going into foreclosure, there is that same number of families who are now displaced,” said Greg Rand, CEO of Own America, a real estate investment consultancy firm.

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Olivier Le Queinec  / Shutterstock

Olivier Le Queinec / Shutterstock

The California Reinvestment Coalition (CRC) released a report based on a survey of community-based organizations, and 80 percent of those organizations believed that large institutional investors were having a negative impact on local neighborhoods — specifically in California.

Bulk purchases of foreclosures by companies like Blackstone and Invitation Homes, according to CRC’s associate director, Kevin Stein, are causing rent increases and edging out interested homebuyers and local real estate agents.

“We have people who want to buy homes to live in, first-time homebuyers in particular, who find it extremely difficult to compete against Wall Street investors,” Stein said.

“And instead of houses in the Inland Empire that could be sold to a first-time homebuyer represented by a local real estate agent, you have people showing up at auctions and buying property on behalf of the Wall Street firms who are not working with the local businesspeople.”

On the other hand, people of all ages — not just millennials — are willingly opting to rent instead of buy, which is giving investors ample reason to want to provide more stock. With the “sharing economy” in effect, more and more Americans are shifting toward a less permanent lifestyle.

And these factors are bringing more rental properties to suburban communities throughout the nation. Wally Charnoff, founder of RentRange and Investability, two data platforms for the rental market, believes that investors are providing necessary inventory.

“Both the institutional and the noninstitutional investors are doing the marketplace a real service and providing something that is needed,” Charnoff said. “If you look at the rental increases that are going on in the suburbs across the country, a lot of that has to do with that there are not a lot of rentals in general.”

Charnoff said there is still a shortage of good quality rental properties, though, and Stein agrees. Although the CRC is more in favor of promoting homeownership, tenant rights and protections is another key recommendation by the coalition.

Both Charnoff and Rand agree that there are definite instances in which large institutional investors may not have offered the ideal service to its renters, and they both argue the same could be said for noninstitutional investors.

These issues have resulted in a chicken-or-the-egg scenario: Is institutional investment driven by high rental demand, or is there a higher demand for rentals because there are fewer homes available to buy?

Email Kimberly Manning.


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