When institutional investors start pouring money into an asset class sometimes it’s time to take notice.
There are investors who just try to find out what Warren Buffett is buying so they can mirror his portfolio. Not a bad idea given the Oracle’s returns.
Right now institutional money is flowing in to Arizona real estate.
The Cromford report released the following numbers. Which are trustee sales to institutional investors. (Average deal size I added for emphasis.)
- THR – 511 deeds – $54M – Average deal size – $106,000
- AH4R – 305 deeds – $33M - Average deal size – $108,000
- EZ Homes – 339 deeds – - $30M - Average deal size – $88,000
- Castle – 58 deeds – $22M - Average deal size – $379,000
- THPI – 191 deeds – $22M - Average deal size – $115,000
- American Residential – 180 deeds – $21M - Average deal size – $117,000
- Nancy Blue – 188 deeds – $19M - Average deal size – $101,000
- Colfin (Colony Capital) – 172 deeds – $18M - Average deal size – $105,000
- Skyline Vista – 88 deeds – $15M - Average deal size – $170,000
- 2012-B Property Holdings – 100 deeds – $12M - Average deal size – $120,000
Thats $219,000,000 invested by hedge fund managers into Maricopa and Pinal counties since January 2012 in trustee sales alone. That doesn’t include short sales, reo’s, private deals.
The pattern is clear though. With median prices for our metro being around $140,000 currently you can see by the deal prices I posted below the hedge funds are betting on the bottom.
Will This Have A Trickle Up Effect
Yes. If cheaper homes are harder to purchase buyers will do what they can to purchase at higher prices. This is what happened before and eventually it will happen again. Once banks decide to take on more risk in their mortgage underwriting.
Although investors are not snapping up as many homes in the luxury market that does not mean it’s not relavent. All real estate is connected. The trickle up effect comes in lower inventories for sale as investors hold homes for rentals.
At the top end of the market in general there are no institutional buyers. The trustee sales tend to revert to lender owned. This is a trend I see changing. As there are less trustee sales available under $200,000 institutional money will start looking for more expensive opportunities.
So that’s just one of the factors helping to determine prices in real estate market. It basically suggests that hedge funds believe that in the medium and longer terms real estate in our area is a good buy. If it makes sense now could be a great time to increase your own personal exposure to real estate.