Housing Market Recovery: What's Different This Time?

Housing market recovery is more than an optimistic dream now; it’s a reality with tangible components. Existing home sales increased for the 20th consecutive month and existing home prices have beaten last year levels for the 12th consecutive month, as well.

Furthermore, inventories of those homes have dropped to a 4.7 month supply – far below the standard 6 month.

However, there’s one thing to consider in this housing recovery. Unlike past housing recoveries, this one is heavily supported by investors — big and small. They account for about a third of home purchases in the existing housing market, according to the National Association of Realtors.

Among those big investors are the Blackstone Group (BX) which has been buying $100 million worth of single family homes a week since early last year, spending a total $3.5 billion to date, according to the Wall Street Journal.

Institutional investors like Blackstone as well as individuals are buying homes to rent as landlords, taking advantage of another growing market. About 12% of U.S. households rented single family homes in 2011, versus 9% in 2004, according to the most recent data from the U.S. Census Bureau.Many of those renters are folks who lost their homes to foreclosure.

While these investor purchases are boosting the housing market they are also creating more risks because investors are not necessarily in the market for the long-run as the typical individual home owner usually is.

What happens when these investment firms leave the market?

“That’s a huge risk," says The Daily Ticker’s Aaron Task. “If they decide…they don’t really want to be in this business all of a sudden you could have a ton of new homes coming back into the market and then that supply situation will get flipped very badly against the market itself.”

Former Budget Director and current deficit hawk David Stockman calls this Housing Bubble part two.

Investors in the housing market also face their own challenges.

“It’s not that great of a business to be a landlord…it’s a little trickier than just a typical investment,” says The Daily Ticker’s Lauren Lyster, noting that landlords have to make repairs to maintain their investments.