Investors Gambling on the Strengthening Housing Recovery

This year, investing firms for hedge funds and private equity have been growing more active in the purchasing of companies and assets relating to the inventory of the housing market, including undeveloped property, homebuilders, foreclosed houses, and manufacturers of building components.

John Paulson, hedge fund manager known best for the substantial bets against the subprime mortgage market just before the economic downturn, has emerged as one of the most prominent investors for this movement.

Currently, he has begun purchasing large amounts of undeveloped land in areas most significantly affected by the housing market collapse. According to Michael Barr, manager of Paulson’s real estate financing, the trends for land value shrink and grow according to economic downturns and upturns respectively.

During the past two years, Paulson & Co have purchased enough land in California, Arizona, and Nevada to construct up to 25,000 homes and are actively seeking more land.

Private Equity Firms Joining in the Investment

In 2012, Blackstone Group spent a noticeable $2.7 billion in the purchase of 17,000 U.S. single-family homes that had previously been foreclosed and will continue to make such investment moves into the current year.

Pine River Capital Management has brought its Silver Bay Realty Trust public, which has already bought an excess of 2,500 properties in areas greatly harmed by the housing crisis, and this company is presently planning 3,100 more home purchases.

This rising demand for investment properties within the market is demonstrated by a parallel growth in traded homebuilders shares, with several notable companies, including PulteGroup, KB Home, and Lennar, reaching 52-week highs recently. Furthermore, shares for these companies have nearly doubled, with those of Pulte more than doubling over the last year.

More Investors Following Suit

Homebuilders are scrambling to take advantage of this increased investor demand, with many investment bankers and IPO investors predicting the publication of an increasing number of homebuilders. Brad Miller, co-head of global equity syndicates at Deutsche Bank, stated that this trend is fairly standard, with many housing companies attempting to cash in on the strengthening housing market.

Brad Geisen, CEO of Foreclosure.com, has related that he has witnessed a notable rise in the demand for foreclosed properties within the past several months, stating that, “No one knows how long it will last, so these investors are trying to buy as much as they can right now.”

Housing Market on the Rise

With this much-increased investor activity, consumer confidence can be expected to rise due to the confidence of these investors. With home prices steadily growing along with mortgage rates, the housing market has made a noticeable recovery from the previous slump and sluggishness of 2011 since the fall of the subprime mortgage market and the bursting of the U.S. housing bubble. While some have expressed uncertainty of this recovery, calling it artificially induced and bound to rebound, this rise in investments illustrates the willingness of real estate professionals and economists to put themselves at risk, signaling that housing recovery may be a burgeoning success.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.