Where oh where has Atlanta's inventory gone?

As an REO agent, the past 6 months have been a struggle to grapple with where all of homes our clients had been previously assigning us have gone.  I along with most other REO-specific agents who handle higher volumes have seen property assignments shuffle in at less than half of the rate we saw in years past so it begs the question...where is it?  Has it all gone to short sales?  I don't think so.  Per FMLS statistics, in April 2011 Atlanta metro had about 34,000 SFR's for sale and in April 2012, about 22,000.  That is a 34% drop in salable inventory and not a negligible percentage...34% is a lot less houses for sale.  If the type of property from REO to short sale was the change the total available homes would be similar...but it isn't...So what gives? 

Well I have a theory.  I like many other agents have been approached by large institutional investors to assist them with acquiring large numbers of homes that they intend upon renovating and renting.  Atlanta...like Arizona in the past few years...has experienced a change in the price/value component where with dropping prices and stronger demand for rental housing investors can now make money buying homes and renting them.  Like anything good, once the word gets out, people with money come running.  Now, there are many investors, some with many millions to spend, targeting Atlanta as their next market to acquire and manage large portfolios of rentals.

Don't get me wrong, there is a need...but these investors may be sealing their own fates faster than expected in the process.  Here is how i see it...Hedge Funds are staking out the foreclosure auctions in our metro counties and buying homes from the lenders on the courthouse steps.  These are houses that normally would go back to the lender and then be sent to REO agents like me to sell.  Effectively, the investors buying many more of these homes at auction and putting them directly into a rental portfolio, takes the houses out of the "For Sale" ranks reducing available homes to purchase.  With static demand and reduced supply, it is only a matter of time before prices begin rising again.  As an REO agent I can tell you that we can't hang on to our inventory right now and everything seems to be selling fast and with multiple offers often at or above list price.

With the redirection of so many homes from sale to rental, the investors are squeezing both sides of the economic formula and the increased supply of rental homes will eventually create too many homes for rent to be absorbed by the static demand for rental homes.  Once these investors start having trouble renting their homes and have to reduce rental rates...combined with more competition and less supply of homes for them to purchase to rent in the first place, their return margins will drop below anything acceptable and they will be looking elsewhere for profits.

I know hedge funds are flocking to the Super Tuesday auctions...many locals are bemoaning the fact that they aren't able to win any of their bids at auction and in many cases, the funds are bidding pricing way above what seems reasonable.  A frenzy to accumulate homes seems to be building.

Many hedge funds think they will have a 5 to 7 year hold where they will enjoy positive rental returns but likely have to wait on appreciation.  I think the opposite will be true.  I think the actions they are taking will have a accelerated effect where they themselves drive rental rates down quickly with oversupply and push values up by their large impact on the demand side of the sale market. 

We will see.  I welcome your thoughts and perspectives.