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.