However on another front, the banking business model is down the drain, fundamentally changed by F_E_D policy, in other words writing loans has been supplanted by chasing higher yielding assets, but any student of bubbles knows this isn't going to last long. What scares me with banks is what is to become of them when there are no more higher yielding assets to chase? Apparently someone else has been thinking about this too from the charts above.
Housing Permits just printed at it's highest since June 2008, almost entirely based on multi-family buildings of 5 units or more.Single Family units were nearly unchanged from 615k to 620k. Many of us know that some of the largest private equity firms hold real estate portfolios (rentals) of 75k-100k units or more, many are not happy with the returns being generated, not quite what the model predicted.
Just recently we saw Brooklyn real estate sales saw 70% go to hedge funds, investors and international buyers.
I'm on the board of our community, serving in two positions and we have seen our number of units for rental purposes go from 15% to over 45%, in fact we almost couldn't get a loan because it was so high, I'd say it's over 50% now and its too late to change the governing documents which we tried and it was shot down.
My wife told me yesterday her parents in Hungary are flooded by ads to "Buy income real estate in the U.S." and were thinking of taking retirement funds to do so, they probably will, I think this is about the time we know it's a bubble.
Realty Trac just contradicted Case Shiller and Permits yesterday; some think the permits is a head fake move because it's a cheap way to make it look like a bunch of demand exists while private equity and hedge funds try to dislodge themselves from this landlord scenario and there are of course the uncleansed masses such as my wife's parents in Hungary that know nothing of the 1-year rule in many communities, the rental permit that must be paid for every year, the laws regarding evictions, etc, in other words, smart money has dumb money all lined up to take the fall here because the average family is NOT buying homes, banks aren't making the loans, most (I saw over 50% in one recent report) of all transactions are CASH.
"Despite the nationwide increase, home sales continued to decrease on an annual basis for the third consecutive month in three bellwether western states: California (down 15 from a year ago), Arizona (down 13 percent), and Nevada (down 5 percent)."
The punch line is institutional purchases of real estate have fell nationwide as more and more dumb money become landlords.
I think there's probably a great opportunity for someone looking to buy a home in the near future because I think there's going to be a massive dump of properties on the market, yet there's little organic demand from real families to buy a first home.
In either case, when you see Hungarians investing in US real estate as landlords, you know the party is over. However, just who will the banks be writing loans to if there's no organic demand?
I don't know the answers, but for those who pay attention I think there's opportunity around the corner, especially if you are a cash buyer.
As for Financials, I don't see a clear income stream setting up and apparently they are about to be hit by another wave of foreclosures at what may be the perfect storm as Funds dump their real estate portfolios en masse.
I know at our board meetings we have been talking about this and we think there's a big opportunity as would-be landlords find it's not that easy, it's not that inexpensive with rising maintenance rates and insurance and we think many properties will miss 3 months of maintenance in which case we can foreclose for $2500 on an unencumbered property and own it for just a few thousand more, making lot of money for our budget, what banks intend to do is less clear.
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