Hooray- hedge funds are stepping down from buying real estate
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Hedge fund real estate

For the past three years they have been swarming over the hardest-hit housing markets, buying distressed properties in bulk and pushing prices higher by double digits. The idea for these investors was not to buy and flip, but to hold and rent. Now some investors say that they have priced themselves out of the market.

“Higher prices are reducing returns on investment, and investors are responding by cutting back on their purchasing plans until conditions sort out,” said Chris Clothier, a partner in MemphisInvest.com and
Premier Property Management Group, which commissioned a national survey of investors conducted by ORC International. “Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales.”

Nearly half the investors surveyed said that they planned to cut back on purchases of homes in the coming year; in a survey last August, just 30 percent said they planned to cut back. Only 20 percent of investors said they plan to increase purchases, compared with 39 percent who said they would last August. All this could have a significant impact on the housing recovery.

Bargains are drying up when it comes to buying foreclosed properties. The number of foreclosure sales in the first quarter of this year fell 22 percent from a year ago, according to RealtyTrac, a real estate website. The number of
short sales, when the home is sold for less than the value of the mortgage, also fell, as rising prices provided less incentive for banks to agree to such deals. Some claim banks are actually holding onto repossessed homes, waiting for prices to rise higher.

Investors accounted for 19 percent of home sales in April, according to the National Association of Realtors, down from 24 percent in all of 2012. Investors include individual buyers as well as large hedge funds, but the hedge funds have been getting much of the attention, credited with juicing prices in the hardest hit housing markets like Phoenix and Las Vegas. Their so-called REO-to-Rent strategy (Real Estate Owned-to-Rent) has evolved into a new asset class, with two of the companies that engage in the practice going public this year as real estate investment trusts (REITs).

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Is this a bubble or a rebound?
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Housing Bubble
An economist from Trulia states that this is not a bubble- merely a rebound- Prices are 7% undervalued because the pendulum had swung back so far in the last downturn, A housing bubble is when prices soar above their fundamental value which is based on supply and demand. A bubble encourages speculation and further price increases.

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Prices up- rents down
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This is an article from Trulia. Does this sound familair? I also expressed my concern about the booming markets that don’t have great economics are are driven by hedge fund buying . I am hearing that rents are over done and the supply has gotten ahead of itself. I wonder if the hedge funds will stop their buying for while when they realize they can’t rent.

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Case Shiller results
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Case Shiller, one of the largest gatherer of data for the housing market has reported that home prices were up big time from last year. Not that this is news to us unless you never read a paper. Phoenix and Las Vegas were the big winners but L.A. also rose over 7% from last last year in November. Prices dropped a little last month but that is due to seasonal factors.

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