Here we are today, only a few years out of the worst recession in 80 years and in many parts of the country, especially places like California and New York, prices are rocketing back towards pre-crash levels. Are we approaching another bubble or is it different this time around?
I think it’s different and let me tell you why. The recovery in residential real estate that started about 18 months ago is not being driven by sub-prime buyers who can’t afford to pay their mortgage payments. This time it’s being driven by big players who have billions of dollars and who see the opportunity to make a decent return and cash flow buying single family homes, fixing them up and renting them out.
A perfect example of a big player is a company called BlackStone Group. You may have never heard of them, but they are the single largest owner of single family homes in America and they have a $13 billion checking account set aside specifically for the purchase of single family homes. Even though they have only been at this new game for about 18 months, they already own 16,000 single-family homes and that is just the beginning. BlackStone is just one of many institutional jumping into this market all over the country. JP Morgan is calling residential real estate a new institutional asset class and estimates that it could be a $1.5 trillion market for investors.
My conclusion is that this is not a bubble and is a sustainable long term phenomenon that could be around for many years. And as long as the numbers make sense, those corporate gorillas will likely stay in for the long run.
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