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Here we go: Wall Street jumps into housing again

Wall Street firms are taking over the US Housing Market

Investors like Zillow, Blackrock, and other Wall Street firms are taking over the US Housing Market. Home prices are at all-times highs, regular home buyers are priced out, and the 2021 Housing Bubble keeps raging. But could this investor home buying surge inevitably result in another Housing Crash

Investor demand in the US Housing Market is near all-time highs according to recent data from Redfin. In the 2nd Quarter of 2021 over 15% of home sales in the US were to iBuyers like Zillow and mom & pop flippers, while over 20% of all affordable homes were sold to investors. These figures are all-time highs!

It’s very likely that these markets, along with any others that have a high share of iBuyers and other investors, also have more downside in a Housing Crash situation. This is because it’s very easy for investors to list their homes for sale, whereas it’s not as easy for an owner-occupant to list. And since an investor is a profit-maximizer, they will likely choose to sell the home in the event of a crash, thereby making the crash worse.

Boston Condos for Sale and Rent

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Here we go: Wall Street jumps into housing again

The NYT has a big piece this morning on how Wall Street is now pushing a brand new product that we’ve mentioned before: Investors buying up foreclosed single-family homes, renting them out, then selling rent-backed bonds to other investors.

But what we didn’t know is that there are now 200,000 rented single-family homes in the US owned by these financiers.

There’s also now a publicly traded company, American Homes 4 Rent, that’s exclusively dealing in this securitization category.

And the disturbing thing – and, yes, it’s disturbing – is how financial firms are now lending money to small-time investors (such as dentists, plumbers etc.) to actually go out and buy these foreclosed homes, rent them out – and then let Wall Street securitize them for bundled sales.

Hey, we’re all for the free-enterprise system. This may end up working.

But it didn’t exactly work out with mortgage-backed securities last decade, when Wall Street firms clearly encouraged weaker mortgage lending practices just so they could bundle as many mortgages together as possible and make tons of money on the front end, leaving taxpayers, via bailouts, with financial responsibility on the back end.

There are already early signs this latest rent-backed securities product isn’t working out so well.

File under: The more things change …

Photo via Wikimedia Commons.

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