This time last year, investment firms raced to buy dozens of single-family homes in neighborhoods from Fontana to South Los Angeles to lease them out, transforming the mom-and-pop rental business into a Wall Street juggernaut.
The flood of cash helped spark a steep rise in prices, drawing criticism for pushing families out of the market.
But now the firms themselves have all but stopped buying in Southern California, the latest evidence that home prices have hit a ceiling. The professional investors no longer see bargains here.
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"Private capital made a lot of money early, and now they're starting to pull back," said Dave Bragg, who heads residential research at Green Street Advisors, a real estate research firm in Newport Beach. "Home prices are up significantly, and houses are definitely less attractive."
The shift is giving regular buyers more homes to choose from, at least those who can still afford them. Experts say an expanding supply should help usher in a healthier housing market, with a better balance between buyers and sellers.
That's a stark change from last year, when buyers faced bidding wars. All the activity drove the region's median home price up to $385,000 by last June, a record 28% increase over the same month a year earlier, according to San Diego research firm DataQuick.
But prices have since been flat in Southern California. Many families are taking a pass on the more expensive homes. And the math doesn't work on Wall Street either.
"Prices have gotten to the stage where we cannot buy a house, renovate it, rent it and still make a reasonable return," said Peter Rose, a spokesman for Blackstone, which owns roughly 41,000 rental houses nationwide. "There was a moment in time where it made sense."
Among the 20 firms buying the most California real estate since January 2012, purchases are down more than 70% compared with last year in each of the last four months, according to DataQuick. At the 20 biggest foreclosure buyers, including arms of Blackstone and Colony American Holdings, purchases have fallen at about the same rate.
Absentee buyers of all kinds bought 21% fewer Southland homes in February than they did the same month last year, according to DataQuick, which tracks housing market figures.
That's not to say the big money is exiting the business entirely.
Many of the biggest players are adopting a buy-and-hold strategy, bundling their properties into giant rental companies, such as Colony American Homes and Blackstone's Invitation Homes. They bought thousands of homes at or near the bottom of the market, setting up big profits from long-term price appreciation.
In the meantime, they can make money collecting rent.
"These are income properties for us," Rose said. "Eventually we'll exit, whether it's an IPO or selling them off. But that's years down the road."
Indeed, the fledgling mass rental industry is taking on an air of permanence. Blackstone in October sold $479 million in bonds backed by the rent paid on some of its homes, a move other firms are also planning. On Wednesday, some of the bigger players launched a trade group, the National Rental Home Council, to advocate for their interests in Washington.
And most are still adding to their portfolios of rental homes — just not in pricey California.
In the second half of 2013, Colony Financial Inc. added nearly 1,000 homes to its rolls in Florida, according to regulatory filings, but just 210 in the Golden State. The firm declined to comment on its plans.
The next wave of buying, industry watchers predict, will be in second-tier markets such as Indianapolis and Cincinnati.
"They're looking for $150,000 three-bedrooms that they can rent for $1,000 to $1,500 a month," said Rick Sharga, executive vice president at Auction.com and former executive at Carrington Mortgage Holdings, which partnered with Oaktree in the rental business. "That doesn't sound like Laguna Beach."
In theory, the migration of big-money investors from the Southland should make more room for regular buyers. But it's not quite working out that way, said John Husing, a housing consultant who studies the Inland Empire, where the buy-to-rent sector has been the busiest in the region.
Home buyers still face tight credit and a soft job market. And those who have been renting for the last year have already lost out on big gains in home equity.
"They missed the upside," Husing said. "And now they're priced out of the market."
Those would-be buyers make ideal renters for the homes the big firms own in Southern California.
"People want to live here, whether they buy or rent," said Gary Beasley, chief executive of Oakland company Starwood Waypoint Residential Trust.
That's why Starwood, unlike most of its competitors, plans to keep buying in Southern California. This month, the company paid $144 million for a portfolio of 707 houses, about half of them in the Golden State.
The company is also still picking up houses here one by one, a sign that ordinary home buyers might still find bargains if they look hard enough.
"Most of the low fruit has been harvested, but there's still plenty of fruit in the tree," Beasley said. "And we've got fruit pickers."