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It's MORNING EDITION from NPR News. Good morning. I'm Renee Montagne.

DAVID GREENE, HOST:

And I'm David Greene. The state of Florida was hit hard by the 2008 housing bust. Now, the real estate market there is heating up. Prices are on the rise. They were up sharply last year, but there's a twist in this narrative. The homebuyers in many cases are hedge funds, private equity firms and other large investors. Over the last two years they have aggressively moved in and bought up tens of thousands of distressed properties, often at bargain prices.

Their demand is helping to drive up prices, potentially forcing middle-class buyers out of the market. Here's NPR's Greg Allen from Miami.

GREG ALLEN, BYLINE: Jeff Lichtenstein is a realtor in Palm Beach Gardens, Fla., and he's busy. He's listing and selling homes at a pace reminiscent of the go-go days of the last real estate boom, in 2005 and 2006.

JEFF LICHTENSTEIN: I have 19 or 20 under contract right now, which is the most I've ever had at any given time.

ALLEN: Lichtenstein is currently showing a home he has listed in PGA National, a resort and residential development with more than 5,000 homes. It's a community of palm trees, lakes, golf courses and manicured lawns.

LICHTENSTEIN: This was built in '92, '93; a little over 1,700 square feet - three bedrooms, three baths. The view is what people come here to Florida for.

ALLEN: The back patio looks out onto a golf course. It's listed for $499,000, Lichtenstein says a bit below what it would have sold for at the peak. But here in Florida, Arizona, Las Vegas and some parts of California, prices are rising fast. In South Florida, home prices climbed 21 percent last year. Homes, especially foreclosures and short sales, are being snapped up as soon as they go on the market, mostly by large investment groups.

Companies like the Blackstone Group, Colony Capital and Starwood Property Trust have spent billions over the past two years, buying homes across the country and putting them on the rental market. It's a buying frenzy that was just getting underway when famed investor Warren Buffett made these comments on CNBC in 2012.

(SOUNDBITE OF ARCHIVED BROADCAST)

WARREN BUFFETT: If I had a way of buying a couple of hundred thousand single-family homes, and had a way of managing - the management is enormous, is really a problem because they're one by one. They're not like apartment houses. But I would load up on them, and I would take mortgages out at very, very low rates.

ALLEN: Since then, that's exactly what dozens of investment groups, big and small, have done. But as prices have risen and foreclosures have slowed, there are fewer bargains out there. Some investors are cutting back on their buying. One who's still in the market is Chip Bryan. He's with Rebound Residential, a company that's bought nearly 200 homes in South Florida. As investor groups go, Bryan's company is tiny, but it operates much like the big guys - buy homes at a discount, rent them out for a good return until prices rise, and then sell when the time is right.

Bryan says after going through foreclosures, many former homeowners now find themselves renting in their old neighborhoods. Once their credit improves, Bryan expects they'll be back in the market as homebuyers.

CHIP BRYAN: That's kind of the pattern we see so, you know, everybody that was a displaced homeowner as a result of foreclosure is most likely a renter and most likely is going to be a buyer again, at some point.

ALLEN: Up to now, the main downside to all the investor activity has been that individual homebuyers have been largely left out. With tight credit, many prospective buyers have found mortgages hard to come by, and when a bargain is on the block, cash buyers are usually the winners.

Jack McCabe, an independent real estate consultant, has worked with some of these investment groups. He says he's seen many cases where they outbid the competition by paying more than the asking price - in some cases, 25 to 50 percent more.

JACK MCCABE: You ask yourself, why would these smart financial guys be overpaying for things? I believe it's to bolster the market, to shut out their competition, and to realize as much profit as they can in as short a period of time as they can.

ALLEN: Some analysts worry that the big investors have artificially inflated prices, making them too steep for middle-class wage earners. McCabe says a recent federal housing report shows South Florida is already becoming unaffordable.

MCCABE: We have about 30 percent of our population that's already paying 50 percent of their income or more just for their housing expenses. When people start having a hard time deciding whether to make a mortgage payment, buy their medicine, put food on the table, that's when you have a troubled market.

ALLEN: And it raises a question: When the hedge funds and other investors are ready to sell, who will their buyers by? Greg Allen, NPR News, Miami.

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