Wall Street investors are cornering the housing market in favor of shareholders and at the expense of homebuyers trying to earn their American Dream of homeownership.
The National Association of Realtors reported in May that the majority of all-cash buyers purchased vacation homes. Their “economists outlook” also did not see a “noticeable shift” in all-cash sales of homebuyers purchasing properties for rent. Lillian Dickerson of Inman reported this month that “institutional investors just recently started dipping their toes back into the market for the first time since the pandemic began. Those investors also often pay in all-cash, giving them a leg up on other less cash-flush buyers.”
Most homebuyers would need to take out a mortgage, putting at least a 3% down payment for financing. As home prices increase, the down payment increases along with an appraisal and other conditions needed to underwrite a mortgage. Even a pre-approval loan is not 100% final until settlement. All-cash buyers require no conditions to have the funds ready to buy the home.
This month, Redfin reported that all-cash sales currently represent 30% of all home purchases in 2021. According to Redfin, 70 percent of the top ten all-cash purchases have been in Florida, the second 10 locations included Cincinnati and Detroit. Further down the list were Baltimore, Las Vegas, and Tucson, Arizona – hardly vacation home capitals – representing at least 30% of all-cash purchases this year.
The last time all-cash sales hit nearly 30% or higher of all home purchases was from 2010 – 2014 following the 2008 housing crisis, according to Redfin.
In 2008-2009, the U.S. accounted for more than 5.1 million foreclosures after the bubble burst, according to statistics from RealtyTrac. 3.1 million of those filings were in 2008 alone, CNN reported. The homes were vacant, nearly worthless, and banks auctioned them off but only at prices they would accept. Institutional investors swarmed in buying in bulk, particularly in the “sand states” like Florida, Arizona, Nevada, Texas, and California. Foreclosures shot up in major cities such as Atlanta, Detroit, Miami, and Cleveland – making those cities attractive markets for purchasing homes to rent.
To swallow up these vacant homes, investment firm Blackstone Group formed Invitation Homes in 2012, and BlackRock and global investment firm KKR & Co. joined forces to form Home Partners America in the same year. Other institutional investors spent billions of dollars and purchased foreclosed homes in hard-hit cities and states across the country in bulk from bank balance sheets at bargain prices.
As Wall Street investors bought more homes, inventories and mortgage rates shrank to their lowest levels on record. Home construction stalled and multiple offers and bidding wars on a limited supply of homes pushed home prices higher to unaffordable levels for first-time homebuyers. Despite record-low mortgage rates, all-cash buyers are now winning out above families looking to buy a home. Meanwhile, the single-family rental market has morphed from the small mom-and-pop investors to a single-family housing rental market controlled by Wall Street and beholden to shareholders.
Meantime, in February this year, the Securities and Exchange Commission declared a $24 billion offering of shares effective for Blackstone Group’s “publicly non-traded” real estate investment trust (REIT) Blackstone Real Estate Income Trust. Last month, Blackstone Group, its REIT, and Blackstone Infrastructure Partners announced a $10 billion purchase of all outstanding shares of QTS Realty Trust, a publicly traded REIT focused on data center assets. It also announced Blackstone REIT will acquire Home Partners America and its 17,000 homes in a lease-to-sale portfolio that may turn into a single-family rental portfolio if current potential homebuyers are unable to make their lease payments.
CoreLogic reported last month that year-over-year single-family home rents increased most in the Phoenix-Mesa-Scottsdale, Arizona area, followed by Tucson, up by 10.6%, Las Vegas with a 9.3% increase from last year and Detroit was eighth on the list as rents jumped by 7.6% from 2020. From May 2020–2021, the top 10 states with increases in single-family home rents include Arizona, Nevada, Texas, Georgia, California, North Carolina, Michigan, and Florida., with cities that include Phoenix, Las Vegas, Atlanta, and Detroit—all severely hit by foreclosures in 2008-2009.
If hindsight is 2020, the Federal Reserve’s “fixes” for the economic crisis due to the pandemic and the 2008 financial crisis—lowering the prime rate to nearly zero—produced cheap capital to giant investment banks that used the capital to purchase single-family homes in bulk and form and acquire REITs beholden to shareholders. As all-cash buyers for single-family homes increase, a housing market bubble bursting is unlikely, but inventory is like to remain limited because construction costs are high and supply chains are slow. First-time homebuyers continue struggling to purchase a home while single-family home rents soar from the past year.
Even more important, the Federal Reserve has further expanded the wealth gap in the United States by denying homeownership wealth to the working and middle class along with stagnant or slow-rising wages and remarkably low savings rates. In the end, without a competitive edge against all-cash buyers, increasing prices on homes and corporate welfare to Wall Street investors are at the expense of individuals and families of this country searching for their own share of the American Dream of homeownership.
Michael Murray
Michael Murray is Director of Communications at Strategic Vantage, a PR and marketing firm based in Miami, Fla., serving the mortgage banking industry. As a Board Member for NAMI Montgomery County, Md., Michael helped create a scholarship for HBCU students focusing on mental health studies. In addition to blogging, Michael edits and writes plays–some performed on radio, television, and theater. He graduated with an English degree from the College of William and Mary.
