Wall Street’s Insidious Plan to Monopolize the U.S. Housing Market

Posted in: Housing MarketOp-ed
December 17, 2019 7:00 PM UTC

Wall Street firms are once again muscling in on the U.S. housing market by buying up large amounts of single family homes and hiking rentals.

  • The 2008 housing crisis allowed Wall Street firms to buy suburban single-family housing all over the country at rock-bottom prices.
  • There is almost nowhere to hide in the U.S. housing market now as big firms look to monopolize the industry.
  • Wall Street is experimenting with new rental-backed security products eerily similar to the ones that brought down the market in 2008.

Wall Street Journal reporter Ryan Dezember yesterday revealed some startling revelations on how financial firms are once again muscling their way into the U.S. housing market.

In an interview with Real Vision, Dezember explains how the 2008 financial crisis made him a reluctant landlord. It also created opportunities for predatory Wall Street firms to become large-scale landlords themselves.

Big-name investors like Blackstone, Public Storage, and Tom Barrick snapped up countrywide suburban homes on the cheap and have been reaping the rental rewards ever since.

Where Is Wall Street Buying?

Thanks to insane living costs in major hubs and, for example, California’s continuing PG&E utility crisis, many Americans are relocating. Cities like Phoenix, Atlanta, Houston, and Dallas are the biggest recipients.

Californians continue to look for greener pastures | Source: NBC Bay Area

Not surprisingly, Wall Street has followed suit and set up shop to monopolize these new emerging rental markets.

According to Dezember, around 2011 when prices hit rock bottom, firms started deploying home buyers with duffel bags filled with cashier’s checks.

They bought foreclosures, in the hundreds, at the steps of courthouses across the country. Dezember goes on to explain:

Imagine if you can get a similar rent on something you paid $200,000 for as opposed to what you might have to pay a million or 1.2 million for. You can see the desirabilities.

The trouble is that big Wall Street firms have big shareholders. And big shareholders have insatiable appetites:

They have numbers to make, quarterly, and they’re going to raise the rents. Rents will go up and they have been going up where these companies operate, sometimes very significantly.

It’s no coincidence that once affordable, Phoenix rents are now among the fastest rising in the U.S.

There’s Nowhere to Hide in this Housing Market

What’s good for Wall Street is usually a disaster for Main Street. And the numbers show it. The housing market is already flashing some severe warning signs that a full-blown crisis is well on its way.

While some claim there is no housing market bubble in play, the Fed’s own homeownership rate looks particularly dreadful:

Homeownership rates remain exceptionally low. | Source: St. Louis Fed

Wall Street’s latest money-grabbing antics target middle and upper-class families. But you’d be mistaken if you thought they weren’t actively chasing lower-income properties too.

John Oliver earlier this year explored how companies like the Carlyle Group, TPG Capital, and Clayton Homes (owned by Berkshire Hathaway) have been buying up and financing mobile homes in droves. And many with extortionate interest rates.

Conclusion

At this point, we haven’t even touched yet on the speculative risks associated with a new type of security these firms are creating.

Major players are bundling thousands of homes into new rental-backed bonds and investors are lapping them up. Essentially leading them down the same path that got them in trouble back in 2008.

The U.S taxpayer fitted the bill then. But will they tolerate that kind of theft again? First, they’ll need some equity to do so and Dezember isn’t too optimistic about future homeownership prospects:

…historically since World War II, homes have been the big democratic asset. That’s how the middle class has gained wealth, and without that mechanism, it’s unclear how the middle class will gain wealth.

Owning your own home used to be the quintessential American dream. For many that vision appears to be nothing other than just that anymore – a dream.

This article was edited by Sam Bourgi.

Last modified: January 22, 2020 11:40 PM UTC

Ryan Smith @trendz

Ryan hails from sunny South Africa. He is fascinated with the broken financial system that threatens to destabilize global markets. He has a keen interest in the history and evolution of money and is always trying to understand the bigger economic picture. When not meticulously looking over the charts, he can be found planning his next road trip or running the trails in his the local nature reserve. Twitter LinkedIn

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