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A few years ago, it would have been difficult to find someone who said the housing market was attractive, but now rising house prices and billions of dollars in investments make one area of the housing market look like a hot bed of future money-making.
Where’s the frenzy?
Families may not be buying homes yet — with unemployment high, it’s too risky for many, even with prices down — but they’re certainly renting, and in some parts of the country, in record numbers. One firm, Blackstone Group LP (NYSE:BX), is in a mad rush to buy up properties across the country as home prices, but especially rental prices, soar faster than many had imagined they would.
Blackstone started buying properties last year and is currently the largest investor in single-family homes to be managed as rentals. Since last year, Blackstone has spent more than $2.5 billion on 16,000 homes and was spending $100 million a week at one point. The availability of homes for purchase is great, as millions of homes have been foreclosed on since 2006. Blackstone’s approach is to buy properties with cash and then finance pools of property on credit, fixing up the homes and then renting them out.
What do the banks think?
The billions of dollars going into the market make it look profitable, and the rising house prices make homes seem like a sound investment, but there is still some uncertainty. There isn’t a long history of cash flow and operation costs from large investors, which makes other investors more hesitant. However, some are are less concerned, as Deutsche Bank AG (NYSE:DB), Citigroup (NYSE:C), and Wells Fargo & Co (NYSE:WFC) have each put millions of dollars behind firms in the housing market. In addition, JPMorgan Chase & Co (NYSE:JPM) believes the industry that has been run mostly by “mom and pop” could be a new industrial asset class worth up to $1.5 trillion.
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