Looks like I was right about the housing market


Just last week, I wrote an article titled “Is the housing market poised for a massive correction?”  In it, I said:

If there is a wave of forced selling, I expect major investment firms to take advantage of it to increase their property holdings, as happened after the last housing crisis.  That doesn’t bode well for private home ownership, as such firms don’t want families to own their own homes.  They want families to rent from them instead, giving them a permanent income stream with less risk than investing in stocks and bonds.

It looks like I was spot-on in that forecast.  Bold, underlined text is my emphasis.

A bidding war broke out this winter at a new subdivision north of Houston. But the prize this time was the entire subdivision, not just a single suburban house, illustrating the rise of big investors as a potent new force in the U.S. housing market … The country’s most prolific home builder booked roughly twice what it typically makes selling houses to the middle class — an encouraging debut in the business of selling entire neighborhoods to investors.

. . .

From individuals with smartphones and a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans, who are armed with the cheapest mortgage financing ever, and driving up home prices.

“You now have permanent capital competing with a young couple trying to buy a house,” said John Burns, whose eponymous real estate consulting firm estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in. “That’s going to make U.S. housing permanently more expensive,” he said.

. . .

“Limited housing supply, low rates, a global reach for yield, and what we’re calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble,” the firm concluded.

The bubble has room to grow before it bursts, according to John Burns Real Estate Consulting. But it is inflating fast. The firm expects home prices to climb 12% this year — on top of last year’s 11% rise — and increase at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005.

. . .

Financiers stepped in starting in 2011 and gobbled up foreclosed homes at steep discounts. They dispatched buyers to courthouse auctions with duffel bags of cash. Smartphones and tablet computers — new then — enabled them to orchestrate the land grab and manage tens of thousands of far-flung properties thereafter.

They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for falling prices. There wasn’t much competition. Stung by losses, banks made it harder for regular home buyers to get a mortgage. Millions of Americans were underwater, owing more on their mortgages than their homes were worth, and unable to move.

Home-rental firms, including Invitation Homes Inc. and American Homes 4 Rent, thrived. Renting suburban homes proved so profitable that landlords hit the open market and added properties at full price once foreclosures dried up. Many now build houses explicitly to rent.

There’s more at the link.

This has very serious implications for anyone buying, selling or renting a home in the foreseeable future.

  • If you’re selling your present home with the expectation of buying a replacement, you may not find many houses available to purchase – or, if there are, you might be competing with a company to buy them, one with deeper pockets than yours.  It might be prudent to check the state of the market before selling, so that you don’t find yourself forced to rent something expensive because nothing is available (or affordable) to buy.
  • If you’re a renter, you may find your landlord is an anonymous big-business conglomerate in another city, not an individual or local company.  That means, if something goes wrong that needs landlord attention, you’ll find yourself dependent on a local building manager who may or may not be willing and/or able to help.  After all, he answers to bean-counters and administrators who are more interested in their company’s bottom line than your home’s comfort and suitability for purpose.
  • Investors – individuals or companies – own things because they expect to make a decent return on them.  When one avenue of investment – e.g. the stock market – offers excessive competition, higher risk and lesser returns, they’ll look for other avenues to invest.  Housing has become a hot market in the US as a result.  Once they own properties, investors are unlikely to sell them as long as they can make a decent return on them.  That means the long-term supply of houses on the purchase market will be permanently restricted, because people are not selling them when they move out – they’re just returning the keys to the landlord, who’ll quickly rent it out to someone else.  Housing turnover will be greatly reduced.

Put all those factors together, and it’s a difficult time to be a home buyer.



  1. I question the statement:
    “ Renting suburban homes proved so profitable”

    It’s because houses keep on going up in price that hides a multiple of sins, plus cheap interest rates. Landlording is a hard business and it’s very easy to lose your shirt. Maintenance is not cheap. And tenants can do an incredible amount of damage.

  2. except that covid restrictions on evictions may well become permanent, thereby killing the investment motivation. i think many are buying as an alternate bank to store their money. they are afraid of losing it all. we're thinking about selling ourselves. we can more than double our investment and buy a "distressed" property in another more friendly state, fix it up, and have a wad of cash left over.

  3. "That's going to make U.S. housing permanently more expensive,"

    That word – Permanently – has been used in one form or another to describe every investing mania in history. It has never proven to be true.
    Invest accordingly.

  4. Well, talking about bubbles (they burst…what happens then?) and "permanently more expensive" in the same paragraph is sorta contradicting yourself…

    IMO the price runup is both inflationary due to extrmely cheap loans plus safe harbor investing in tangible things vs stocks and bonds. This is done by everyone with money to invest, from individuals to corporations. Big city flight also makes for a good bit of it, at least around here.

    The hard part is that corporations are far more agile and tend to be able to bail when the bubble bursts, vs a homeowner that sees a huge percentage of the value in home they bought disappear and become instantly underwater through no real fault of their own.

  5. @Kevin Pilsner: One of the problems there is that many baby boomers live in more expensive, upmarket homes. When those come on the market, they'll be unaffordable to many who are entering the housing market, looking for lower-priced homes. There's also the factor of mass emigration from violence-prone areas. A lot of folks are moving out, but a lot fewer are moving in, so there's a glut of properties on the market.

    As an example, Minneapolis is already hitting this problem. I've heard from several folks there who are taking a loss to sell their big, expensive homes, because so many people are leaving there (thanks to the George Floyd-related violence) and so few are moving in. Those who are buying in that area at this time typically want less expensive homes in safer areas, and aren't prepared to pay a premium price for bigger, more luxurious homes closer to the city (and to the riot zones).

  6. Had a call today form someone wanting to buy my home. I told then 300,000 would buy it. 120,000 over tax assessment. I would sell for that even with the issue associated with getting another place.

  7. Housing availability IS becoming an issue in Texas right now. How long will it last? No good answers here. And I'm sure as hell NOT seeing 11-12% jump in value!

  8. Gee, it's 2007 all over again, isn't it?

    At a time that building materials are 2 to 3 times what they were 2 years ago.

  9. The inventory in Free South Florida is also tight. My house's value has gone up $85,000 in 24 months. The price of entry-level homes is rising even faster. Invitation Homes, who Peter mentioned in particular, is bidding madly in the area. A realtor friend is competing against them for his clients. They're brutal, and targeting distressed homes and short sales in my area as well.

  10. My daughter and son in law are taking advantage of the irrational exuberance to unload their crap house in garland TX. She’s yet to list and is getting pelted by calls from investors.

    A lot of these low end starter houses are nothing but pain and suffering. Many of them had Pedro from Oaxaca, who understands nothing of codes, do the work for a fast flip.

    Their logic is sound. Cash in, rent until the inevitable crash. Rents in un refurbed houses are reasonable. The locusts coming here to Dallas want new and shiny. We went through that selling our house in the last bubble. Starter low end houses are hot. High end is doing good. In the middle, the mook with a lived in 2500 to 3500 sq ft house can’t get anyone interested.

    To expensive for first timers and investors.

Leave a comment

Your email address will not be published. Required fields are marked *