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.
"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."
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.
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.
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.
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.
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.
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.
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.
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?
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.
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