Wall Street betting billions on single-family homes in distressed markets
Source: Washington Post
By Michael A. Fletcher, Apr 22, 2013 12:27 AM EDT
The Washington Post MIAMI Big investors are pouring unprecedented amounts of money into real estate hard hit by the housing crash, bringing those moribund markets back to life but raising the prospect of another Wall Street-fueled bubble that wont be sustainable.
Drawn by the prospect of double-figure profit margins on rents and the resale of homes whose prices plummeted in the crash, hedge funds, Wall Street investors and other institutions are crowding out individual home buyers.
If the chain of easy credit and dangerous leverage that started on Wall Street fanned the housing bubble and eventual crash, some analysts find it disturbing that major investors are the ones snapping up the bargains and eventual big profits left in its wake.
There is the possibility that Wall Street and the banks and the affluent 1 percent stand to gain the most from this, said Jack McCabe, a real estate consultant based in Deerfield Beach, Fla. Meanwhile, lower-income Americans will lose their opportunity for the American Dream of building wealth through owning a home.
Read more: http://www.washingtonpost.com/business/economy/wall-street-betting-billions-on-single-family-homes-in-distressed-markets/2013/04/21/ac4bdefc-a2e1-11e2-9c03-6952ff305f35_story.html
"Forget it, Jake. It's Chinatown."
xchrom
(108,903 posts)MannyGoldstein
(34,589 posts)Yo_Mama
(8,303 posts)Declining household incomes and higher debt levels have left the first-time buyer prospects extremely sensitive to price.
In the areas where these investors are doing the most business, they are buying houses and raising the average price significantly. They are also putting so much into that rents are even falling in some of these areas, which is the reverse of what's supposed to happen. But when they stop buying and start selling, the markets are going to become imbalanced again and prices will drop. This will leave some of those first-time buyers underwater again. It's not a pretty picture.
Further, interest rates are lower than they were in the GD and its wake, so now we have the prospect of an interest rate increase coinciding with another market flooding event.
People don't realize how incomes have shifted for first-time buyer prospects. On this census page you can download table H.9, which gives household median income history by age bracket. You have to scroll down and take the "all-races" one H-9 one:
http://www.census.gov/hhes/www/income/data/historical/household/index.html
For the 25-34 bracket, which is most important for initial home purchases, real median household incomes fell from $58,007 in 2000 to $50,774 in 2011 (most recent data). That's 12.5%. You can't have this and have a stable housing market.
I think that the median household incomes are improving for this bracket now, but improvement is not going to be swift, and behind the scenes, the 2% FICA increase has cut their "real" incomes further this year.
For the 35-44 bracket, real median household incomes over the same period fell from $70,216 to $61,916, or 13.8%.
Home prices are going to tend to fall rather than rise over the next 20 years. Even in very "good" active markets, you can't expect home prices to do anything but stagnate except for the top-line areas.
This age bracket also faces higher insurance costs, on average (older population means that medical costs rise on average per capita), and continuing high "basic needs" prices, as well as tax increases on the state, local and federal levels. So real disposable incomes will be further constrained.
Any time you have home prices diverging this far from incomes, you have built up problems in the system. In this case, the problems will be exaggerated by high student debt levels and a rebound in mortgage rates to at least 4.5%.
on point
(2,506 posts)and they are left holding the bag. (empty)
Star a movement, that makes it distasteful to buy from the bloodsuckers
or only offer them 50 cents on the dollar
marmar
(76,982 posts)nt
FreakinDJ
(17,644 posts)patricia92243
(12,590 posts)paying jobs,they will not be buying from anyone and Wall Street will be stuck with them. And, it will serve them right.
OnyxCollie
(9,958 posts)They'll lobby the government to take the crap off their hands.
hughee99
(16,113 posts)The government won't bail you out for just a few million. If you're going to lose, lose BIG.
pipoman
(16,038 posts)I have been an antiquer for decades. I sometimes go to estate auctions and listen to the other collectors bitching about antique dealers there buying stuff. I always viewed it as if I purchase something and a dealer was the under bidder, I did OK...the dealer believed there was still profit to be made at his/her last bid, so I must be a little below retail..
Same may be true for housing. If a bank for instance buys a distressed property, they will have to hire every nail driven, whereas a homeowner can save on labor by doing some of the work themselves, hiring smaller contractors, negotiating for the work, buying reduced price materials through good shopping, etc. When all done, a resident buyer, or even a small investor will be into the property at a lower price than their big business bank hiring a big business general contractor..
will it create another bubble? Don't know...we're quite far from that right now..
djean111
(14,255 posts)not going to do much work on the houses. The banks can't
be bothered to pay taxes on repossessed homes, much less fix them up.
Most bank repos are sold as is.
It would, of course, be great if there were suddenly lots of jobs for local contractors - but I have a feeling that will be outsourced. I have gotten three different offers to buy my house - one Wall Street firm actually bragged that they are undercutting first time and low income buyers - but I threw them out. I am not underwater, but owe enough that a lowball price won't be enough to get me into a better home. Not that mine is bad. I was one of the three people in the United States that got a free refi from Wells Fargo - honestly, when I got the papers in the mail I thought it was a trick! - so I doubt I can do better elsewhere.
That all being said, Wall Street is evidently free to do whatever it wants while all in Washington eat fancy dinners and count campaign funds, so all we can do, IMO, is watch.
Tom Rinaldo
(22,911 posts)In the large sense anyway. When they win coming or going, and never face prosecution, there is every incentive for them to keep playing fast and loose with economy.
noiretextatique
(27,275 posts)the very people who manipulated the market is now profiting from that manipulation. it's criminal in every sense of the the word, but apprently not illegal.
pipoman
(16,038 posts)I remember Japanese investors buying up real estate, paying big money, until the market turned and they got their asses handed to them..
I still feel it is a great time for young people to buy a nice home for a reasonable price...assuming they are able to keep work of coarse..I was encouraged last week when a young man who works in my kitchen qualified for a mortgage and bought a house..awesome..they deserve it..
noiretextatique
(27,275 posts)i am expecting a settlement soon, so i hope to take advantage of the market. i live in the bay area of california, and trust me, investors are going to make a killing here. there are so many cheap properties; they can just flip them as is and make a profit. i hope there are more mom and pop types benefiting from this mess, like your co-worker, instead of 1% types.
Cleita
(75,480 posts)One of our local stations is doing a show on how to make money flipping properties here due to the "new opportunities" available in the current real estate market.
benld74
(9,888 posts)noiretextatique
(27,275 posts)or granting loans to those workers so they can gain wealth.
midnight
(26,624 posts)this crash....
OnyxCollie
(9,958 posts)Obama administration pushes banks to make home loans to people with weaker credit
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obamas economic advisers and outside experts say the nations much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs including those offered by the Federal Housing Administration that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Read more: http://www.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_singlePage.html
http://www.democraticunderground.com/?com=view_post&forum=1014&pid=442628
midnight
(26,624 posts)move mighty fast when it lines their own pockets don't they....
jackmccabe
(1 post)If you change the President's name either to William Clinton or George Bush, you'll have made an accurate statement.
Housing values/wealth are shifting from middle class and lower class to the affluent upper class US and international, plain and simple.
To think otherwise is to ignore history.
OnyxCollie
(9,958 posts)Now, what are you talking about?