Is Wall Street setting up another housing crash?

Big investors and speculators are snapping up properties with cash and pushing prices up. The fear is that's creating a new bubble.

By Bruce Kennedy Apr 23, 2013 7:10AM

Image: The suburbs of Las Vegas copyright Gerald Lord/fStop/Getty Images"If I had a way of buying a couple-hundred-thousand single-family homes, I would load up on them," famed investor Warren Buffett said on CNBC last year. "It’s a very attractive asset class now. I could buy them at distressed prices and find renters."


Well, the market is apparently acting on the Oracle of Omaha's words.


The Washington Post reports that Wall Street investors and others are currently putting "unprecedented amounts of money" into real estate. And while that cascade of funds is apparently helping to revive the real estate sector, especially in states like Florida that were hardest hit from the recession, some analysts are concerned about deja vu -- the possibility of another unsustainable, speculation-fueled housing bubble.

 

"I don’t know whether things are as good as they seem to be," Scott Kranz, co-principal with Title Capital Management in Florida, told the newspaper.

 

"The end-user would need to see a great increase in jobs, availability of mortgage money and a loosening of the reins that have been holding them back," he noted. "But all the economic indicators ... are not at that point."

 

And while the Street, the well-to-do and some financial institutions are likely to benefit from this uptick, it will also push hopes of home ownership that much further away from financially struggling U.S. families.

 

"The investors are making it hard for a regular homeowner to buy a property," Robert Russotto, a broker with Better Homes and Gardens Real Estate in Fort Lauderdale, Fla., said in an interview with the Post. "They are getting outbid by people with cash."

 

Global investment management firm PIMCO is forecasting an 8% to 12% appreciation in housing over the next two years, as the economic recovery gathers momentum.

 

Meanwhile, low interest rates and depressed housing prices are creating a perfect storm of enthusiasm from investors. "Residential property is an on-fire asset class," said Kranz to the Washington Post. He also noted that his firm has put more than $100 million into residential real estate for investors in the past 12 months.

 

But all this movement is frightening some analysts. "At some point the music stops," Dean Baker, co-director of the Center for Economic and Policy Research told the Post. "The investors, if they get hurt, that is their problem. But invariably a lot of other people will get caught up in that."

 

More on moneyNOW:

199Comments
Apr 23, 2013 9:22AM
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If these investors are coming in with cash, I don't really see the problem.  Things got out of control before because of unsustainable debt - someone making $50k was qualifying for a $300k loan.  So houses that should have been valued at $150k were being bought and sold for $300k.    If everyone put at least 20% down, we wouldn't have any serious housing bubbles.  And if these investors are paying 100% in cash, it only serves to stabilize prices and indicate the true value of a house.

And, if like the article says, "it will also push hopes of home ownership that much further away from financially struggling U.S. families", that might be a good thing.  Families that are struggling have no business buying a house anyway.
Apr 23, 2013 11:37AM
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We tried to purchase a house last year and put offers on 18 properties and were beat out by investors.  It was very depressing for us.  We finally found one that would not talk to investors until it was on the market for 30 days.  It finally opened the door for us.  Happy now in our new home for the past 8 months.  But come on guys give the little guy a chance.
Apr 23, 2013 9:46AM
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"Outbid by people with cash" God forbid the economy works the way it should. These liberal pigs are never happy.
Apr 23, 2013 11:40AM
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Here in LA I am seeing a HUGE boom...I am seeing asking prices on homes that are about $100,000 to $200,000 higher than last year prices in my neighborhood...It is all flippers selling and the buyers who are lined up to buy the houses from them are FANNIE/FREDDIE people...= People with not 20% down = Bubble about to happen. FANNIE/FREDDIE caused the first meltdown (They bought up the junk Wall Street gave them) and they will be the cause of the next meltdown.

Apr 23, 2013 8:53AM
Apr 23, 2013 12:20PM
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I'm a capitalist and support people's right to invest and grow their investments. But, the housing asset class is an unfortunate one for them to invest in. By making it more expensive for the people who actually need to live in the house to do so (while never owning the house) it reduces the buying power of the average Joe which drags the local economy and leaves Joe reliant on whimsical investors. I know it's low hanging fruit (right now) but it sure stinks that people who want to be homeowners now need to compete with arm's-length investors who are inflating house prices.
Apr 23, 2013 1:02PM
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The rules are simple ! 20% down , employment for 5 yrs , and a house payment not above one weeks pay ! And a credit score above 750  !!!!! Sound lending principals ! If the banks stick to this , there will never be another meltdown . And Americans will have their home values like Canada. They stuck with sound lending principals during America's and wall street housing frenzy .. And their banks separate deposit money with speculators money in their banks ! Kind of like the ( Glass Stiegel law) America got rid of during the Clinton yrs. So Citi banks could buy Travelers' insurance. That's what started the meltdown . Anyone who knows anything knows that ! ... And so does wall street banks . You cannot combine high risk investing with deposits . They must be separated and kept that way ! Investing is a risk , let the investors risk their own money and take all the risk . Too big to fail mantra must end on wall street ! No more us tax payer bailouts for wall street . They live or die on their own . Thats true capitalism , what we have here is socialized wall street today.
Apr 23, 2013 12:25PM
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 Restore the housing market to the parameters pre-bubble. Get rid of the  "everyone deserves a house" movement . Do not experiment with sub prime, keep eyes and ears on the street bankers and balance supply with demand. Moving forward also means forget the blame game, forget dems vs reps or rich v poor. There were a lot of players in this game and all deserve a swift kick in the ****.
Apr 23, 2013 12:09PM
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When I was buying property a couple of years back, I was asked by the bank holding the short sale mortgage whether or not I was an investor or not.  I was told that preference was given to homeowners over investors.  So if I offered the the same as a primary homeowner, even as an all cash offer,  I would have lost the purchase.

There is nothing wrong with this.  Homeowners usually stablize a neighborhood and that pride of ownership makes for better community members.  Nothing makes a person more of a concerned citizen than having a "piece of the action," and owning a home has been a bedrock of that philosophy.  Now that the middle class is considering lifelong renting as a way of life because they are being locked out of the market by lack of income and rising home prices, it will alter neighborhoods and degrade communities as renters don't have the same pride as homeowners.

Even GW Bush was on board with getting homeownership increased during his tenure.

Apr 23, 2013 12:53PM
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I'm surprised to see what people pay for the run down outdated houses in California that are shown on the reality shows.

 

Here in the suburbs of Houston, TX., you can buy a new 2000+sq. home with nice finishes, close to shopping, entertainment and in good school districts in the $130,000 to $160,000 price range.

 

Most of the outdated run down fixer-upper houses for sale in California as shown on reality shows that cost around $500,000 can be found here for around $85,000.  

Apr 23, 2013 11:05AM
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You do know Wall Street is not an actual entity or thing?
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Im all for cash being spent on these homes. Buy them cheap and sell them for a profit works for me. If delapitated homes can be bought and fixed up then I agree. A higher resale improves our property values.

But I'm not for any type of bailouts if these people default or no one is buying.

Buy with cash or a good percentage down. No more e-z qualifying that totally ignoes a potential buyers real ability to pay.

Apr 23, 2013 12:04PM
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Cash buyers, no loans to default on.  Oh my god the sky is falling.
Apr 23, 2013 12:45PM
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What else is new? Speculators always drive prices up. Housing is rising too fast to justify the increases, especially with the new improved low wage ,sweatshop employment market. People just getting on their feet will still not be able to afford a house.

 

Apr 23, 2013 12:15PM
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I live in So-Cal, and I have been in the Market to buy for the last few months. I have placed multiple offers on houses well over the asking price. I have lost every one to Cash Investors. It is killing me. These Cash Investors are outbidding me and bidding stupid money on the Houses. Now, there is little inventory on the market because these guys are renting out the houses rather than selling. This Housing Market is stupid Crazy. I pretty much gave-up at this point at buying. I am trying to buy a house for my family. All these investors care about is money. I hope there is another Housing Market Crash and these investors are wiped-out.
Apr 23, 2013 12:29PM
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ABS,

My point is exactly what I have advocated prior.  The system should try to encourage a degree of fairness to all it's members and not just the entitled elites and there is too much money in the hands of too few.  The shiftless poor are no better than the shiftless wealthy.  Neither generates much productivity to society as a whole.

Apr 23, 2013 12:28PM
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If you don't see this ending poorly, your eyes are closed. How is this any different than what led up to the French Revolution?
Apr 23, 2013 12:42PM
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What is the point of attaining massive wealth if it doesn't ultimately benefit humanity in some way?

Isn't it the reason we try to find cures for disease, or prolong life?  Isn't the goal of large numbers and education to create some future benefit for all of mankind? To find another Einstein or Salk?

On a micro level, it's about living better, but on the macro level, it's about keeping our species alive and living better.  Who wants to go back to the prehistoric or feudal eras?

Apr 23, 2013 11:41AM
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"If I had a way of buying a couple-hundred-thous​and single-family homes, I would load up on them,"

There is a way.  it's called a REIT----Real Estate Investment Trust.
But I doubt if Buffet would settle for the magic middlemen in his action.
Apr 23, 2013 3:50PM
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the issues that created the last bubble have NEVER been addressed.  it's just more bailout and more government control. 
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