REOs to Rentals - Reducing Shadow Inventory - Restoring Home Prices

To sabilize home prices and return to steady appreciation, we must reduce the great number of bank owned  or REO properties (foreclosures) surging into the market. REO's sell at 78% of value thereby depressing property values.

One thing that might save us to a certain degree is a plan by the Obama administration to turn some of the foreclosed properties into rentals - REOs to Rentals.

The president himself said, “We’re working to turn more foreclosed homes into rental housing because as we know and a lot of families know that empty house for sale down the block can bring down the price of homes across the neighborhood.” 

The FHFA, which handles both Freddie Mac and Fannie Mae’s foreclosures, announced an REO bulk sales initiative that aims to sell off bulk assets to investors who have the ability to turn these properties into rentals. 

Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed homes as rentals (out of more than a million homes that are foreclosed) to speed up the economic recovery. GTIS Partners will spend $1 billion, GI Partners expects to invest $1 billion, and Oaktree Capital Management will spend $450 million on similar housing.

This REO to Rentals program will take care of only a portion of homes that will be coming to the market, but it will knock down the number.  That helps advance the forecast to return to home appreciation in late 2012 or certainly in 2013.

The other message here is that capital equity firms are saying that housing is a good buy right now. If people who truly understand money, the equity firms, buy housing ... real estate professionals feel we should advise our clients to do the same.  It's a good time to buy.

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