Archives for December 2011

The Asset Class of Single-Family Real Estate

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If there’s one thing that Morgan Stanley would like to advise to you, it’s to take a look at single-family homes and consider it as part of your real estate investing strategy.

That’s right, these properties have become hot among real estate investors recently considering the shift in the US property market from home ownership to rentals (or as Morgan Stanley puts it, a “renter-heavy society”). It’s exactly the new real estate paradigm!  Even Bank of America and the Federal Housing Finance Agency have sought measures to reduce the impact of mortgage delinquency by working on an REO rental program for its underwater borrowers.

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The New Rental Real Estate Paradigm

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Morgan Stanley Research released its latest real estate report, Housing 2.0: The New Rental Paradigm to provide market insights to investors. It’s interesting to know that the research team observes how more Americans have become renters instead of homeowners, attributing to different factors in the economy.

The report states:

Across the country, more Americans are becoming home renters, and fewer Americans are becoming homeowners. The beginning of the rentership society is upon us. But all renters are not equal – of the roughly 40MM rental housing units in the country (representing roughly $6 trillion in asset value), about half are multi-family and half are single- family.

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National Economic Outlook (December 2011)

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Although the overall health of the economy is of interest to everyone, if you're a banker you particularly want to know when people will start borrowing money again.

Very roughly speaking, banks typically hold equal amounts of commercial loans, commercial real estate loans, home mortgages, consumer loans, government securities, and cash. With commercial, mortgage, and consumer lending sharply lower in the last few years, banks now hold more government securities and a lot more cash, both of which don't produce much income.

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