Unstructured Finance

Home sweet home, Blackstone

July 1, 2013

Kay Chapman and her boyfriend were saving up money to buy a home in the Las Vegas metro area while renting a home in a nearby town. But after months of plotting a strategy to buy a home at a foreclosure auction, they’ve given up for now and will soon move into another rental home–this one owned by private equity giant Blackstone Group.

Chapman and her boyfriend had to alter their strategy because the owner of the home they are currently renting from decided to sell after seeing how quickly home prices have surged in Sin City in the wake of all the institutional buying firms like Blackstone. Chapman’s current landlord wants far more for the house than she and her boyfriend are willing to pay.

So soon they’ll be moving into a Blackstone owned home, one of some 26,000 single-family homes the private equity giant has bought in US markets hard hit by the housing bust.

Chapman was one of the people featured in a Special Report detailing how the rush of money from Wall Street firms like Blackstone has created a buying frenzying for single-family homes in Las Vegas. The story examined the phenomena of fast-rising home prices in Sin City and other parts of the U.S. hard hit by the housing bust — much of which stems from big investors flushed with cash and starved for yield.

When I met Chapman and her live-in boyfriend during a visit to Las Vegas in early March, she told me they had gone month-to-month on a home they were renting in Enterprise, Nev. (a town on the southern fringe of Las Vegas) because they were hoping to buy something at one of the daily foreclosure auctions. But the couple quickly found just how difficult that was as the price of homes either got bid up by Blackstone and other buyers or they came to the auction lacking  the proper paperwork.

The couple was eyeing the auction because neither of them can qualify for a mortgage before year-end because of their damaged credit histories—a byproduct of the housing bust. Chapman, for instance, short-sold a home she had previously owned in Las Vegas, meaning she can’t qualify for a mortgage before year’s end. But the couple had scrambled together enough money to bid for a home in the 130K range—the problem is many homes in Las Vegas are not going above that at auction and on the MLS.

The couple was planning to make a bid on another home when they got word their current landlord wants to sell would like them out in a few weeks. Fortunately because of all the institutional buying of single-family homes in Las Vegas, there are more than enough homes to rent.

And so, Chapman and her beau recently found a place to rent—a home owned by Blackstone, which she says is “completely redone” inside. She adds, it’s “like a brand new home.”

As for Chapman, she says renting another home may not be the worst thing. She said a realtor friend who helped them find their new rental home said in another year things may calm down in the Vegas market. Chapman’s friend believes the “real estate bubble we have going on now should be resolve by then.”

Of course that all depends on what the Fed does and whether it pulls back from its easy money policies as it has indicated. But if the Fed decides rates—in particular mortgage rates–are moving up too quickly and decides to keep its foot on the gas, the cheap money for buying homes may continue to flow for quite some time.

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