Reinforcing the belief that the U.S. housing industry is on the mend after several dismal years, The Economist recently reported that the battered sector is once again attracting big-player investors.
Certain investors are looking to profit from the recovering housing market by investing in residential mortgage-backed securities. These are the same financial products that, in the run-up to the housing collapse, some investors "shorted," or bet against and won when defaulted subprime mortgages poisoned the U.S. economy. That these types of investments are "tacitly guaranteed" by the government and packaged in tax-efficient structures are two reasons they're attracting investors once again, The Economist reported.
On the other hand, non-agency mortgages not backed by the government are "far more volatile and thus more appealing to return-hungry investors," The Economist wrote. Picking up these types of investments at "rock-bottom prices" has been a boon for some hedge funds.
Other investors are buying houses outright in hopes to rent them later on. They're finding the homes at foreclosure auctions; certain large cities auction off thousands of them each month, and some can go for half their 2006 peak price. These investors are hoping home price increases will result in "fat capital gains."
Other investors are winning by not even investing in property. Some, like Warren Buffett, are purchasing real estate agencies, while others are investing in home builders or home suppliers, shares of which are up sharply.
