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Wall Street Flipping Main Street Off Housing Rebound

Story updated with additional background.

NEW YORK (TheStreet) -- Big wall street investors, flush with cash and hungry for yield, are quickly snapping up foreclosed homes, leaving traditional real estate "flippers" struggling to find a bargain in some bottoming housing markets.

The housing market has been showing signs of recovery in recent months as the inventory of foreclosed homes, which have depressed home prices, has begun to shrink.

Heavy investor demand for distressed properties and fewer foreclosures by banks as they explore other alternatives has helped even out the supply-demand dynamics in several markets.

A pilot program by housing giant Fannie Mae to sell foreclosed homes to institutional investors in bulk with the purpose of converting them into rentals has also been greeted enthusiastically on Wall Street.

Bank of America (BAC) also has a deed- to- rental program.

KBW estimates that investors have raised between $6 billion and $8 billion in recent months in anticipation of bulk sales. Big players in this space include Blackstone (BX), Kohlberg Kravitz Roberts (KKR) and Oaktree Capital (OAK).

However, the entry of big institutional investors into local markets has upset real estate agents and "mom and pop" investors, who complain that the value of homes are being artificially inflated again.

"Large investors are cannibalizing the inventory," says Zachary Kepes, who has been an investor in single and multi-family distressed assets in Maricopa County, Arizona for over a decade.

Kepes typically buys distressed homes at a discount, refurbishes them and sells them to an end user or investor or rents them out.

But he has found it hard to compete with the bulk buyers from Wall Street.

According to Kepes, private equity players and hedge funds are buying property in the area often at as much as 115% of market value, because they have money to throw around. These investors are satisfied with a cap rate- a measure of return on investments in real estate- of 5% to 6%.

That locks out investors like himself- flippers if you will- who would need a return of about 10% to profitably invest in a property, fix it up and resell it.

"All inventory at the bottom of the market exploded," says Kepes. "For one and a half years, the market was sedentary. I could buy homes easily. Now I have to re-cultivate my relationships with my contacts and ask short sale agents to give me the first right of refusal on a property."

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