Wall Street, not Main Street, props up housing: Jason Ader

NEW YORK Wed Nov 28, 2012 8:50pm GMT

1 of 2. Jason Ader, CEO of Ader Investment Management, speaks during the Reuters Global Investment Outlook Summit in New York, November 28, 2012.

Credit: Reuters/Keith Bedford

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NEW YORK (Reuters) - A major factor underpinning the U.S. housing market's recovery is the bulk purchase of foreclosed homes from institutional buyers like hedge funds and private equity, said Jason Ader, who runs the New York-based Ader Investment Management firm and is himself a former Wall Street analyst.

Speaking at the Reuters Global Investment Outlook 2013 Summit, Ader said signs of a comeback in the housing market more than five years after its bubble burst stem from Wall Street, not Main Street.

"The positive numbers that are coming out of housing are probably related to the institutional purchases of foreclosures," said Ader, in reference to hedge funds and private equity that have profited from renting out foreclosed homes such as Blackstone Group (BX.N) and TPG Capital," he said, adding: "If you really look at new mortgage originations, it's very low, and the individuals are not out buying homes."

Ader said institutions have been the "primary buyer and absorber" of foreclosed homes in crucial states such as Arizona, Nevada, California, and Florida, and that persisting high U.S. unemployment and rules that keep immigrants from buying homes are limiting new mortgages.

The Commerce Department said on Wednesday that sales of new single-family home fell slightly - by 0.3 percent - in October, and made a downward revision to its September sales rate. here

While Wednesday's report also reflected some upbeat sentiment, that the median sales price was 5.7 percent higher in October from a year ago, the slight decline in home sales continued to cast doubt on a housing market recovery.

Ader, who was an early investor in foreclosed housing, said he stopped investing in that market when a flood of new demand ramped up prices.

He said there was a year-long period when he was able to buy a mortgage with a value of $250,000 for as low as $60,000, but started to see downside when prices rose to as much as $140,000 per home.

"Once we saw prices go up, the yield come down, and we were very cognizant of the business risk that we didn't think the new funds getting into the business understood, we were happy to sell to them," Ader said.

In October, Reuters reported that Och-Ziff Capital Management Group LLC, the $31 billion hedge fund led by Daniel Och, told its investment partner, 643 Capital Management, that it wants to exit from the foreclosed homes business.

The hedge fund looks to profit on a portfolio of about 300 foreclosed homes in northern California that were acquired at distressed prices.

Rick Sharga, vice president at Carrington Mortgage Holdings Inc in Aliso Viejo, California, which has been buying and renting foreclosed homes since 2007, said there are a lot of new entrants into the market who don't seem equipped to become landlords of single-family homes.

"There's more money chasing these properties than there are good properties available. And the really hard part of this whole equation is: Once you get the properties, what do you do with them?" Sharga said.

"We're concerned about some of the companies, some of the investors coming in maybe not being capitalized appropriately to actually manage these properties for the long haul," he added.

(For other news from Reuters Global Investment Outlook Summit, click here)

(Reporting by Sam Forgione; Editing by Jennifer Ablan and Gunna Dickson)

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