The Wall Street Journal reports:

“From the very beginning, we’ve thought of this as eventually becoming a public company,” says Justin Chang, a principal with Colony and acting CEO of Colony American Homes, the private-equity firm’s new rental REIT. “This is a big opportunity, the beginning of an asset class.”

In its early stages, Colony’s effort, which started buying up distressed single-family homes about four months ago, looks fairly similar to the strategy pursued by Beazer and other single-family rental investors.

Colony says it has raised about $750 million so far, mainly from institutional investors, and has bought about 600 homes s in Arizona, Nevada, California and Colorado. The company expects that by the end of June, it will have bought more than 1,000 distressed homes, and it plans to expand by the end of the summer to Texas, Georgia and Florida. An IPO could happen in the next 12 to 24 months.

But it gets worse. Colony (and others, like Carrington) are only able to make their models work because they can buy bulk properties at discounts from Uncle Sam.

The other main difference for Colony is that the company has access to thousands of single-family properties that might work as rentals through its deals with the federal government. Colony has bought distressed loans valued at more than $4 billion in seven separate transactions with the Federal Deposit Insurance Corp. over the last few years. Hundreds of these loans have been distressed single-family home loans, which Colony now owns in partnership with the FDIC. Mr. Fuhrman said putting those homes into the new REIT could be an option.

This institutional real estate investor space is going to continue to get more crowded. Reuters is reporting:

Oliver Chang, head of U.S. housing strategy at Morgan Stanley, who has written more about foreclosed homes as an investment opportunity than any other Wall Street analyst, is leaving his firm to start his own buy-to-rent housing fund.

Chang announced his decision on Monday in a resignation letter he submitted to Morgan Stanley obtained by Reuters.

“Having followed this market for the past several years, I believe it represents one of the most compelling investment opportunities available across all asset classes today,” Chang wrote in a letter to his former Morgan Stanley colleagues.

Chang’s move comes at a time when many hedge funds and private equity firms are raising money to acquire foreclosed homes with the intent to rent them out for several years before selling them as the housing recovery takes hold.

As a recent example, asset management firm TCW, which specializes in fixed-income securities and oversees $128 billion in assets, recently launched the TCW Home Place Partners fund, as an opportunity for wealthy investors to invest in the “housing turnaround” by buying foreclosed homes from banks and federal government agencies.

And Beazer Homes USA, Inc in early May announced Beazer Pre-Owned Rental Homes, Inc. (BPRH)– founded by the company and includes an investor group led and arranged by affiliates of private equity ship Kohlberg Kravis Roberts & Co. The Beazer fund will acquire, refurbish and lease recently-constructed, previously owned single-family homes on a large scale in select markets in the United States.

The wave of new funds marks an indication that investor interest in foreclosed homes is widespread. Some of that interest has been spurred by an initiative by the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, to accept bids from investment groups seeking to buy an initial round of 2,500 Fannie-owned homes in cities like Atlanta, Chicago, Los Angeles and Phoenix.

All of this will lead to reduced supply of homes for local investors and first-time home buyers. To say that this will prop up prices “artificially” probably isn’t correct, but this certainly isn’t a free-market organic recovery.

To me, this stinks. Crony capitalism strikes again as a few well-connected fund managers will get rich as the rest of us are left out in the cold. Millions of homebuyers will end up paying more for homes over the next few years because of this “solution.”

On the bright side, if you already own a lower-tier home, expect home prices to continue to strengthen.

This isn’t the market I wanted because it’s not a real, organic recovery. But it is what it is. We’ve got to accept the market we have. Andrew Jeffery recently wrote:

Minyanville’s Todd Harrison is apt to say, “we must trade the tape we have rather than the tape we want.” Housing bears clinging to either past glory in predicting the market’s demise or hopes of future glory predicting another collapse would be well to remember this quip. It may be true that falling home prices could be a boon for the middle class, as prospective homeowners could get in at lower prices. Indeed, the quicker backlogged inventory clears, the quicker the market can get back to trading truly on fundamentals.

But we live in an environment where an imminent collapse in home prices is just not likely. In fact, it could now be considered a Black Swan, if it weren’t for the fact that everyone is looking for it, rendering it no longer as such.

True dat.

http://lowes.inman.com/newsletter/2012/05/24/news/188861

The Mercury News is reporting that there will be a press conference at 10:00 this morning with the official announcement.

Also, this is a pretty big blow for Oakland. They’ve lost the Warriors, and could easily lose both the A’s and the Raiders. As a city that should be much better than it is, this is a painful loss.

NAR reports:

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.4 percent to a seasonally adjusted annual rate of 4.62 million in April from a downwardly revised 4.47 million in March, and are 10.0 percent higher than the 4.20 million-unit level in April 2011.

…

Total housing inventory at the end of April rose 9.5 percent to 2.54 million existing homes available for sale, a seasonal increase which represents a 6.6-month supply at the current sales pace, up from a 6.2-month supply in March.  Listed inventory is 20.6 percent below a year ago when there was a 9.1-month supply; the record for unsold inventory was 4.04 million in July 2007.

…

The national median existing-home price for all housing types jumped 10.1 percent to $177,400 in April from a year ago; the March price showed an upwardly revised 3.1 percent annual improvement.  “This is the first time we’ve had back-to-back price increases from a year earlier since June and July of 2010 when the gains were less than one percent,” Yun said.  “For the year we’re looking for a modest overall price gain of 1.0 to 2.0 percent, with stronger improvement in 2013.”

Calculated Risk adds:

According to the NAR, inventory increased to 2.54 million in April from the downwardly revised 2.32 million in March (revised down from 2.40 million). Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

CNN blogger creams himself over Facebook Effect

Via Calculated Risk:

The number of salesperson’s licenses is off 29% from the peak, and has fallen to 2004 levels. But brokers’ licenses are only off 7% and has only fallen to early 2007 levels. Even if activity and prices have bottomed, the number of agents will probably continue to decline.

Note: agents and brokers don’t just “quit”… their licenses slowly expire over time. The actual number of active agents is probably down quite a bit further than this chart shows.