I think I've seen this story before ...
Let's see, the housing market is in recovery mode. Happy days are here again, right? Not even close.
What's happening is that some of the biggest institutional market players, rather than individual home buyers, are making full cash purchases of homes. This has had the effect of pushing up market prices, which has created much of the housing market happy talk.
So what's behind the surge in home purchases by large institutional market players?
In real simple terms big Wall Street market players are stuffed with bailout cash and a continuous stream of artificially low interest rates from the Federal Reserve. This is what's driving home purchases, and the recovery happy talk. Indeed, in California and Florida between 20 and 35 percent of all home purchases are made, in cash, by big out of town market players. In several of the hardest hit markets more than half of all home sales are going to institutional market players rather than to individual home buyers.
Let's not forget that the many of the same market players that are now purchasing homes by the thousands are the same market players who helped crash the economy just five years ago (with cheap money). The difficult part of this story is that after benefitting from the taxpayer funded 2008 bail out the big institutional market players are now reaping the benefits of the Federal Reserve's low interest rate money policy to fund home purchases, again.
What this means is that rather than having a housing market recovery that's driven by ordinary people with new jobs, higher wages, and hope our housing "recovery" is being led by big banks and institutional players. And yes, this is the same group who helped turn many of yesterdays homeowners into todays renters.
At the same time many aspiring homeowners, who are just now crawling out of the market rubble of 2008, are finding themselves in bidding wars with full cash buyers. In the process they have to put up larger bids and must come up with larger deposits. And they have to do this in an environment where banks are reluctant to lend to them, in spite of the fact that the banks are sitting on a pile of cash - more than $2 trillion - which they have primarily because the American taxpayer is backstopping both the Fed's cheap money policies and the 2008 bailout programs that the big money players are benefitting from now.
As Yogi Berra might say, it's déjà vu all over again.
- Mark
Let's see, the housing market is in recovery mode. Happy days are here again, right? Not even close.
What's happening is that some of the biggest institutional market players, rather than individual home buyers, are making full cash purchases of homes. This has had the effect of pushing up market prices, which has created much of the housing market happy talk.
So what's behind the surge in home purchases by large institutional market players?
In real simple terms big Wall Street market players are stuffed with bailout cash and a continuous stream of artificially low interest rates from the Federal Reserve. This is what's driving home purchases, and the recovery happy talk. Indeed, in California and Florida between 20 and 35 percent of all home purchases are made, in cash, by big out of town market players. In several of the hardest hit markets more than half of all home sales are going to institutional market players rather than to individual home buyers.
Let's not forget that the many of the same market players that are now purchasing homes by the thousands are the same market players who helped crash the economy just five years ago (with cheap money). The difficult part of this story is that after benefitting from the taxpayer funded 2008 bail out the big institutional market players are now reaping the benefits of the Federal Reserve's low interest rate money policy to fund home purchases, again.
What this means is that rather than having a housing market recovery that's driven by ordinary people with new jobs, higher wages, and hope our housing "recovery" is being led by big banks and institutional players. And yes, this is the same group who helped turn many of yesterdays homeowners into todays renters.
At the same time many aspiring homeowners, who are just now crawling out of the market rubble of 2008, are finding themselves in bidding wars with full cash buyers. In the process they have to put up larger bids and must come up with larger deposits. And they have to do this in an environment where banks are reluctant to lend to them, in spite of the fact that the banks are sitting on a pile of cash - more than $2 trillion - which they have primarily because the American taxpayer is backstopping both the Fed's cheap money policies and the 2008 bailout programs that the big money players are benefitting from now.
As Yogi Berra might say, it's déjà vu all over again.
- Mark
1 comment:
Dr. Martinez, I don't know if you remember my friend (I'll leave his name out) who went to NYC with us for the Model UN event. Well anyways, he had a very hard time getting a home. Everything you said he went through. He kept losing out to cash buyers left and right every single time! It was insane!
He also had a hard time getting loans. They kept denying him even though he makes more than enough and has great credit standing. He had to constantly argue with the banks about it.
He just FINALLY purchased a house about 2 weeks ago after 1.5 years of searching.
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