From the WSJ:
U.S. housing recoveries almost always have been ignited by rising demand from families and individuals looking for a place to live. This recovery is different. Investors—including some big Wall Street players—are leading the way, say industry executives and analysts. Their role is noteworthy given that flippers and speculators were blamed for helping to inflate the housing bubble of the past decade.
Today’s investors are mostly buying with the intention of holding on to the homes and renting them out. As they pile into the housing market, they have set off a chain reaction that has stabilized prices and changed market psychology, industry executives and analysts say. Fear of buying homes when prices are dropping has been replaced by the fear of missing out on cheap homes.
“Whether they knew it or not, investors helped set a floor. They warmed up the market, and it brought buyers back,” said Lanny Baker, chief executive of real-estate brokerage ZipRealty.
Investors have always played a role in the housing market, but their presence was often small. Currently, cash buyers—largely investors—make up about 32% of sales nationally, according to the National Association of Realtors. In Southern California, a favorite target for investors, absentee buyers accounted for 31.4% of purchases last month, up from an average of less than 17% between 2000 and 2010, according to DataQuick MDA, a real-estate research firm.
The rush of investors into the housing market follows a long push by federal policy makers to foster the American dream of homeownership that unraveled for some people in the housing crash. The homeownership rate fell to around 65% last year from 69% in 2005. “We’re clearly at the beginning of a rental boom,” says Christopher Thornberg of Beacon Economics. “We all saw there had to be a shift towards renting single-family units that owners could no longer afford. Investors played a critical role in that transformation.”
Around 12% of all U.S. households—more than 14 million people—rented a single-family home in 2011, up from 9% in 2004, according to the most recent U.S. Census figures. Three-fifths of people who lost their homes to foreclosure in the past five years ended up renting a house, said Ms. Zelman.
Not everyone believes that the current level of investor activity is healthy. Some worry that investors will eventually flee the housing market if values erode again or if the expense of maintaining a large number of homes becomes onerous. “Are they going to continue to maintain them? Or are they going to dump them into the single-family market?” said Mr. Thornberg of Beacon Economics.
Some investors have a notorious history in the housing market. During California’s housing bust in the late 1980s and early 1990s, the federal government sold hundreds of homes in California’s San Bernardino and Riverside counties, about an hour east of Los Angeles. Some homes weren’t maintained, turning entire neighborhoods into shabby rental communities.