Residential Real Estate Funds at a Crossroads
All sectors of the real estate market suffered significantly due to the economic dismay of the past two years. Residential real estate, however, was one of the hardest hit and it has yet to rebound since the credit crunch has made it extremely difficult to obtain financing to buy or develop new housing. As we move into 2010, investors have mixed feelings about where residential real estate will head.
Some believe that the sector will experience another dip in the first half of the year mainly due to the ending of government programs that have been artificially ballooning demand. Rising mortgage rates could also cause a setback. According to CNBC, “Unless the government decides to extend its Fannie-Freddie purchase program or do something else to juice the credit markets, mortgage rates will rise steadily, probably leveling off somewhere around 6 percent.”1 If rates rise, it will be harder for many consumers to qualify for financing, further decreasing demand for residential properties.
On the flip side, some investors are of the opinion that recent increases in the number of home buyers viewing properties online as well as attendees at open houses indicate that the market has hit bottom and is on its way up.2 Investors that BHA analysts have spoken with seem to agree. During the past four weeks, investors have shown increased interest in the residential space. In total, more than 57 percent of real estate fund investors have expressed an interest in residential real estate funds—which shows a growing interest and a belief that there are opportunities in the residential space.
One such investor, a Boston-based consultant, is exclusively researching real estate funds of all strategies that are focused on residential properties. The firm believes that as the market rebounds the depressed pricing will lead to opportunities for larger returns.
Although real estate in general remains speculative moving into 2010 based on the credit crunch and stricter lending policies of various financial institutions, there is sentiment from professionals in the industry that real estate—and specifically residential real estate—is showing signs of recovery.
1 CNBC, “Predictions 2010: Real Estate,” December 1, 2009.
2 HamptonRoads.com, “U.S. residential real estate market is improving, expert says at lecture,” January 13, 2010.