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And the Smart Money Is Already Withdrawing

New buyers at risk of being the "greater fool"
Tuesday, June 4, 2013, 11:07 AM
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Executive Summary

  • The data shows first-time home buyers already beginning to throw in the towel
  • But house "flipping" by amateur investors is coming back into vogue
  • Why we're back in a housing bubble
  • Big funds are beginning to exit retail housing due to too much "stupid money"
  • The risks every home buyer (and homeowner) needs to be aware of right now

If you have not yet read Part I: Housing Prices are Being Dangerously Distorted by Big Institutional Money available free to all readers, please click here to read it first.

The Impacts

As noted in the Salt Lake City anecdote above, one obvious impact of all this institutional money is that it is preventing ordinary people from buying a home because they cannot compete with the big money firms:

Blackstone, other investors snap up thousands of Tampa Bay rental homes

Ken and Susan Beran embodied that old idea of the American dream. They married. Built a house. Raised a daughter within its walls. But after 30 years, as Ken eyed retirement, the Berans envisioned a different dream.

In December, they moved to a new home — this time, to rent. Ken said he can't imagine ever buying a home again. Susan, a first-grade teacher, hasn't felt so calm in years. "I'm leaving a building I had to maintain, had to stress over," Susan said. "I'm taking all of my memories with me."

Bad credit, ravaged savings and evolving attitudes are driving more Americans to rent houses, and big-money investors are waging war to win their business. Few are mightier than the Blackstone Group, which dropped $150 million to buy 1,000 Tampa Bay homes — in just the last six months.

The New York-based private equity giant has already bet $3.5 billion across the country that the housing crisis has fundamentally changed the way many families live. Once-proud homeowners like the Berans, they believe, are beginning to reject home ownership altogether.

It seems entirely wrong to me that the Fed bailed out big banks and made money excessively cheap for institutions, and that this is being used to price ordinary people out of the housing market.  Said another way, the Fed prints fake money out of thin air and some companies use that same money to buy real things like houses and then rent them out to real people trying to live real lives.

Recently it was shown that the number of first-time homebuyers has fallen by 25% as these typically low-end buyers have retreated in the face of higher prices. 

Not exactly the sort of 'spin' you usually read on that story, but it's more honest than trying to claim that the recent price hikes are due to improving consumer confidence and an economic recovery...

 

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