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
AMEN Frank! If you are a first time buyer out there trying to get a home and take advantage of the historically low rates and keep getting beat out by the competition, this is why.
ReplyDeleteThe inventory of homes are there, they just aren't available to you the buyer, or the good local people working in this industry, like real estate agents, lenders, title reps, escrow companies, home inspectors, termite companies, etc. All of us count on that business to help the buyers we work with and as a result, support our families and the local economy.
The homes that would be available for you to purchase are being sold in bulk at deep discounts and then rented for 3-5-7 years from what I'm hearing. Let your elected officials know loud and clear that this is not ok and not helpful to our housing market, home values, or the local economy in general.