Bulk Sales Revisited

This past week, I made the trek to Sacramento for the California Association of REALTORS® business meetings. And once again the hot topic was the bulk sale proposal from Freddie and Fannie.  You may remember that a few months ago I told you about Lance Martin (REALTOR® extraordinaire) who almost single handedly led the leadership of CAR to make the decision to lobby against this program.

While CAR has sent emissaries to Washington to address the issue, and spent copious amounts of money in print ads in an attempt to rally the public support in opposition of bulk sales in California, it appears that we could in fact be fighting a losing battle.

I say this because of the view on the horizon (let me explain). Seven years ago, we were in an incredible real estate market, prices were rising quickly. The average buyer could afford an above average home. And, there was nothing but blue skies all around us. But on the horizon, the companies who had always been there when the market collapsed and foreclosures were everywhere, were once again ramping up. And I remember quite clearly telling anyone who would listen, why would they be doing this? I knew in my heart that the market could sustain itself well into the future. All of the indexes that I studied told me I was right. And I was, until I was wrong.

You see while, I continued to sell, sell, sell, these companies built infrastructures that would handle the tidal wave that we would soon experience.

Fast forward to today and there are a couple of companies forming with the sole purpose of capitalizing on the opportunities that will present themselves if this bulk sale program goes through.

Here is what we know about the manner in which these homes will be distributed. The will be sold in lots of about one hundred and fifty homes. The successful bidder may not resell the homes for a period of five years and the homes must be made available for rentals.

First, from a practical standpoint your average investor cannot afford to purchase one hundred and fifty homes in a single acquisition. So, they will not have a role to play in the process no matter how great the discount is.

So this would mean that Fannie and Freddie would be taking off market hundreds of thousands of homes at a time when (in our market) we only have one and a half months inventory. And, to compound the problem our current rental market is booming. Rents are up, inventories are down. A flood of new rentals on the market can only tend to collapse the rental market by driving the rents down.

And here is something that no one is talking about. If the small investor doesn’t have a role in this scenario on the acquisition side and, his return on investment is going to be diminished because of the glut of new rentals suddenly appearing on the market, what we will have allowed to happen is tantamount to highway robbery.

When this happens, hundreds of thousands of homes will be removed from the market for up to half a decade at a time when most markets do not have enough to sell. And, the equity that could have been earned by hundreds of thousands of investors across the country, will instead be siphoned off to a scant few conglomerates big enough and rich enough to play in this arena. And in their wake they could easily force the mom and pop landlords across the country out of business if they cannot absorb a substantial reduction in rental income.

And the reality is that as we speak, they are gathering cash, hiring people of influence, and positioning themselves to capitalize on this opportunity. While at the CAR meetings I heard of one long time FANNIE employee who has left the security of his job where he is well compensated, to work for one of the companies who is figured to be a major player.

If this were the stock market, they would be jailed for insiders trading. If it were a company like Microsoft crushing the competition by excluding them from markets they should have access too, the federal government would pounce in a minute to right the injustice. And, yet here we are, and no one is speaking for the little guy.

So I ask you (all of you) write your representatives in Washington and Sacramento and tell them, we simply cannot afford this transfer of equity from the many to the chosen few. This simply is not the American way.

See you in Escrow