Lennar announced that they are going to jump into the home rental business. This is another way of conveying the fact that they have too much inventory and need to try and “monetize” some of their inventory. Housing: Look Out Below.
This is an outright acknowledgement that the market for home sales is deteriorating. As it is, the big investment firms who loaded on buy-to-rent properties are already looking for exit strategies:
Small batches of investor-owned properties have trickled into public listings, indicating some investors may be gearing up for larger liquidations, according to Daren Blomquist, vice president at the online real estate company RealtyTrac.
More than just “small batches” have already been liquidated. Big investment companies are finding that its more difficult to achieve acceptable lease yields, especially after expenses, than their junior analysts’ Excel spreadsheet models indicated.
The big investment firms sucked up a lot of the inventory overhang from the big bubble. Now that there’s been a glut of apartments built and being built, the rental market is going to “soften up” significantly. It already is in Denver. Now Lennar is throwing in the towel on frozen inventory and will add even more inventory to rental market. Eventually there will be a flood of unrented properties hitting the market for sale, as hedge funds rush for the exits. This is the catalyst that will cut the housing market’s Achilles’ Heel. It is going to get ugly.
I predicted this would happen about 18 months ago. It’s been taking a bit longer than I expected, but it’s happening now.
I have documented in detail in my housing research reports that new homebuilders have exceptionally bloated inventories now, especially in relation to their rate of unit sales volume and their debt levels. Lennar’s announcement confirms my view.