Investors Aren’t Driving the Housing Recovery, Chang Says

The U.S. housing recovery is being driven more by buyers seeking a place to live than by investors, said Oliver Chang, a former Morgan Stanley analyst and proponent of bringing institutional capital to rental housing.

Purchases by owner-occupants seeking to take advantage of mortgage rates that are close to a record low have been the biggest factor in rising home prices and sales following the worst housing crash since the Great Depression, according to Chang, who left Morgan Stanley last year to co-found Sylvan Road Capital LLC, an Atlanta-based single-family home rental investment fund.

“It’s possible that investors are less in the driver’s seat and more along for the ride,” Chang wrote in a note before the Information Management Network conference on single-family rentals that starts today in Miami. “The housing recovery appears to be broad-based and here to stay, although not because of the entrance of institutional investors into the space.”

Private-equity funds, real estate investment trusts and high-net-worth investors have raised more than $10 billion to buy homes to rent, seeking to take advantage of prices 29 percent below the 2006 peak and rising demand for rentals from Americans blocked out of homeownership. Blackstone Group LP, the world’s largest private-equity firm, has spent more than $4 billion to buy 24,000 rental homes in the past year.

Sales Fall

Sales of previously owned U.S. homes fell 0.6 percent in March from the previous month as a tight supply of inventory -- especially listings of bank-owned homes or others selling for a loss --limited the number of deals, the National Association of Realtors reported today from Washington. The median home price climbed 11.8 percent from a year earlier to $184,300, the biggest gain since November 2005, according to the group.

“The share of existing home sales which took place under distressed conditions fell again, to 21 percent -- the lowest level in the five-year history of this series,” Paul Diggle, property economist with Capital Economics Ltd., wrote today in a note from London. “Looked at another way, excluding distressed sales, existing home sales rose by 4.7 percent month-over-month and 23 percent year-over-year in March.”

While large investors have been credited with being leaders of the recovery, they “represent a minuscule portion of the total housing market,” Chang said in his report. “It’s a good thing that owner-occupied buyers are driving sales and price increases -- it means that there is some level of increasing fundamental demand.”

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