STANISLAUS COUNTY — The last time the housing market was this hot in Phoenix and Las Vegas, the buyers pushing up prices were mostly small-time. Nowadays, they are big-time — Wall Street big.
Large investment firms have spent billions of dollars over the last year buying homes in some of the nation's most depressed markets. The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out.
Some are wondering if prices will slump anew if the big money stops flowing.
"The growth is being propelled by institutional money," said Suzanne Mistretta, an analyst at Fitch Ratings. "The question is how much the change in prices really reflects market demand, rather than one-off market shifts that may not be around in a couple years."
Investors having been buying up an abnormally high percentage of Stanislaus County homes this year, according to property records gathered by DataQuick.
In February, for example, 34.5 percent of Stanislaus homes were sold to absentee owners, and such investors bought up about 30 percent of homes in March and April. That's about double the investor action that had been typical since 2000.
During the last five years, nearly a quarter of all Stanislaus homes have been purchased by people who live elsewhere.
Many of those homes, apparently, have been turned into rentals. Before the foreclosure crisis hit in 2007, the U.S. Census Bureau estimated renters occupied 25,316 housing units in Modesto. But by 2011, that number had grown to 31,495. That's 6,179 more Modesto rental homes — a 24.4 percent increase.
Wall Street played a central role in the last housing boom by supplying easy — and risky — mortgage financing. Now, investment companies such as the Blackstone Group have swooped in, buying thousands of houses in the areas where the financial crisis hit hardest.
Blackstone, which helped define a period of Wall Street hyperwealth, has purchased some 26,000 homes in nine states. Colony Capital, a Los Angeles-based investment firm, is spending $250 million a month and owns 10,000 properties. With little fanfare, these and other financial companies have become many renters' landlords, retaining the possibility of unloading the homes at a profit when prices rise.
Hunting for bargainsWhile these investors have not touched many healthy real estate markets, they are among the biggest buyers in struggling areas of the country where housing prices have been increasing the fastest. Those gains have been at the leading edge of rising home prices nationwide.
Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't. Nationwide, 68 percent of the damaged homes sold in April went to investors, and only 19 percent to first-time homebuyers, according to Campbell HousingPulse. That is helping shore up prices and create confidence in the broader markets.
"When people write the story of this housing recovery, these investors will be seen to have helped put the floor under the housing market," said David Bragg, an analyst at Green Street Advisors. "In some of the key markets, that contributed to the recovery."
The story often looks more complicated on the ground. Joe Cusumano, a real estate agent in Riverside County, said that in recent months 90 percent of his business had been for companies such as Invitation Homes, a Blackstone subsidiary.
Home values in Riverside County have risen by 15 percent in the last year, according to CoreLogic.
But Cusumano said he wondered if faraway investors would properly maintain the homes they buy. He said that Invitation Homes had been willing to put money into the properties, but he was not so sure about the other players. He worries what will happen when these investors start selling, as they inevitably will.
"The thing that scares me is the values going up so quickly," said Cusu-mano. "That's what happened before and that's what's scaring me. Is this going to happen again?"
The idea of investors' buying homes and renting them out is nothing new. But in the past, landlords were almost always local. Now big investors are using agents such as Cusumano to stake a claim to entire neighborhoods.
In a sign of the potential peril ahead, Fitch Ratings warned last Tuesday that prices for single-family homes in the regions with the biggest housing rebounds had been outpacing the growth rate in the local economies and "could stall or possibly reverse" if big investors start selling.
But even if the housing rebound is becoming overheated in some places, it does not carry the most significant risks of the real estate boom that came crashing down in 2008.
Investment groups are not heavily indebted, making them less vulnerable to small movements in real estate values, and the risks aren't spread as widely through the financial system.
All of this has made it hard for house hunters such as Jeff Martin, who is looking to buy a fixer-upper in Riverside County. Martin, 58, has made offers on 15 houses over the last year. Last Wednesday, he received his latest rejection. On most of the houses, Martin has lost out to investors making cash offers.
Banks to blame?Martin, a retired Navy veteran, puts much of the blame on banks that have been holding on to empty houses, lowering the supply of available homes. He said he has trouble faulting the investors, given that he was involved in real estate financing during the last boom. But he is worried that if mortgage rates begin to rise, he will lose out on his opportunity to buy. Rising mortgage rates also could lead to a broader slowdown in the real estate recovery.
Cusumano said that the investors he works for have been trimming back their purchases in the area. His agency closed on three houses for investors in May, down from eight in February.
But the fevered pitch of the market has not died down. On Friday, one of his clients closed on a house just a month after it went on the market. There were eight bidders, despite a listing that read "NEEDS TLC!!" Cusumano's client won the house only after agreeing to go $500 over the asking price of $194,500.
"It's just a strange market," he said. "We are in uncharted territory."
Bee staff writer J.N. Sbranti contributed to this report.