From the New Deal to the late 90's, the real estate market in America was pretty much the same with very little fluctuation. Then in the early 2000's the banks started giving mortgages to people who should never have had them. The bubble burst in 2007 and nearly took the financial market with it.
What everyone expected was that real estate would return to the pre-housing bubble state that we are all familiar with.
What is happening instead is something very different.
We appear to be drifting to a pre-New Deal real estate market. A market where regular working class families are priced out and the wealthy elite are the landlords.
First, let me post three charts.
New home sales, which have never recovered, are declining again because mortgage rates are rising.
In fact, mortgage applications are at a two-year low while home refinancing is almost non-existent.
So then why are new home prices rising?
The reason is actually rather simple.
Most new homebuyers are buying homes with cash. They are literally laying hundreds of thousands of dollars on the table.
Who can afford to do something like that?
Rogers said he has gone into escrow twice and lost out both times, as other buyers have been willing to pay more. He has been shocked by competing investors paying $75,000 to $100,000 more than what he has estimated some homes to be worth.
The big speculators have pooled all their money; they invest and they bid them up,” he said. “It’s crazy. Some of them, they pay pretty close to what it’s actually probably worth fixed up, but then by the time they put money into it, they are going to be $50,000 to $60,000 over.”
So are these home buyers the much talked about and fabled foreign investors who is just itching at a chance of buying into the "American Dream"? I remember that they were supposed to save the housing bubble in 2005, but they never seemed to arrive. I've been told that they will soon arrive to save the retirements of the Baby Boomers. So where are these foreign investors?
There are foreign investors, but unless you already live in a tourist area, the fabled foreign home buyers are as fictional as Santa Claus.
Two decades ago you were competing with other working class families. 10 years ago you were competing with anyone with a pulse.
Now you are competing against big pocket investors, hedge funds, and real estate investment funds. Or to put it another way, the same Wall Street speculators you bailed out 5 years ago with your tax dollars is now buying homes that you can't afford in order to rent to you.
Blackstone has spent more than more than $2.5 billion on 16,000 homes to manage as rentals, deploying capital from the $13.3 billion fund it raised last year, said Jonathan Gray, global head of real estate for the world’s largest private equity firm. That’s up from $1 billion of homes owned in October, when Blackstone Chairman Stephen Schwarzman said the company was spending $100 million a week on houses...
The firm, along with Thomas Barrack’s Colony Capital LLC and Two Harbors Investment Corp., is seeking to transform a market dominated by small investors into a new institutional asset class that JPMorgan Chase & Co. estimates could be worth as much as $1.5 trillion.
That's right. Wall Street is your new slumlord.
If you think those Wall Street speculators might cut you a break because you bailed them out, you better think again.
Researcher Leigh Rosenberg tells Minnesota Public Radio News that since 2000, rents have risen about 6 percent statewide, but renter incomes have dropped about 17 percent.
Banks have tightened credit since the 2007 crash, so it is harder for working class families to get a mortgage. This is causing an unprecedented fall in the home ownership rate.
“purchase-mortgage origination volumes have fallen from around $1.5 trillion in 2005, when the housing market peaked, to around $500 billion in each of the last two years.”
- Goldman-Sachs study
Before the New Deal most homeowners were the wealthy, while the working class were renters. We appear to be headed back in that direction.