US housing market products forecast to boom

The first securitisation backed by rental income from the US housing market could be on offer to investors within three months.

Private equity firms have spent millions this year buying homes in foreclosure, which they plan to renovate and then wrap the rental income into structured products to be sold to yield-hungry investors.

Kevin Petrasic, partner in the global banking and payments systems practice at law firm Paul Hastings, said: “There are investors with plenty of cash sitting on the sidelines looking for investment opportunities with different levels of risk, and I would not be surprised to see a rental securitisation in the next three to six months.”

The US housing market is showing firm signs of recovery. JP Morgan chairman and chief executive Jamie Dimon said last Friday: “We believe the housing market has turned the corner. In our mortgage banking business, we were encouraged that credit trends continued to modestly improve.”

Stephen Schwarzman, chairman, chief executive and co-founder of private equity giant Blackstone Group, told investors in a second-quarter results conference call: “I think we are more or less picking another market bottom.”

This month, The Wall Street Journal reported that Blackstone has invested more than $1bn since the start of this year to buy more than 6,500 foreclosed houses in eight metropolitan areas, including Chicago, Miami and Phoenix. On October 10, it also confirmed that it had closed its seventh real estate fund at $13.3bn, which it said was the largest opportunistic real estate fund ever raised. Blackstone declined to comment.

At least five other buyout firms have similar strategies. One has estimated the potential size of the US single-family home rental market at $1 trillion. c