The Next Housing Bubble Courtesy of Private Equity

Sigh. Heavy sigh. Oy. In the Nation – How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme – Again

So who do you think owns the most rental housing in the country?  

Few outside the finance industry have heard of Blackstone. Yet today, it’s the largest owner of single-family rental homes in the nation—and of a whole lot of other things, too. It owns part or all of the Hilton Hotel chain, Southern Cross Healthcare, Houghton Mifflin publishing house, the Weather Channel, Sea World, the arts and crafts chain Michael’s, Orangina and dozens of other companies.

As you could have guessed, when the last housing debacle happened the folks with ALL the money saw an opportunity and bought up houses all over the country like a whale effortlessly sucking up tons of krill. They’ve spent an average of $100 million a week snapping up the homes people used to live in before Wall Street tanked the economy and, you know, threw us all to the wolves.  

So now that housing is coming back, prices rising, construction restarting, Blackstone and their owner/investors will once again reap a harvest of cash.  The cruel plan is essentially to rent houses back to the people who used to own them, or whomever. Because people do tend to need housing to keep them from the elements and roving bands of zombies. 

In hindsight, it’s clear that the Great Recession fueled a terrific wealth and asset transfer away from ordinary Americans and to financial institutions. During that crisis, Americans lost trillions of dollars of household wealth when housing prices crashed, while banks seized about five million homes. But what’s just beginning to emerge is how, as in the recession years, the recovery itself continues to drive the process of transferring wealth and power from the bottom to the top.

I do have a problem calling this a get-rich-quick scheme because 1. the people doing this are already rich, and 2. it doesn’t have to be quick, these parties can hold onto properties forever and play the long game because they’re never desperate to rent or make a sale. You will pay their price or you can live around a fire in a garbage can keeping one eye open for the zombies, it’s all good to the pirates of the street called Wall.

And with all of this formerly owned housing now off the market, held out for renting, and all the speculation taking place, that means the price of houses is going up faster than it would have, and pricing actual sincere want to be homeowners out of the house they want.

Last year, Mark Alston, a real estate broker in Los Angeles, began noticing something strange happening. Home prices were rising. And they were rising fast—up 20 percent between October 2012 and the same month this year. In a normal market, rising home prices would mean increased demand from homebuyers. But here was the unnerving thing: the homeownership rate was dropping, the first sign for Alston that the market was somehow out of whack… 

“Institutional investors are siphoning the wealth and the ability for wealth accumulation out of underserved communities,” says Henry Wade, founder of the Arizona Association of Real Estate Brokers.

 But that’s not all. You didn’t think that Wall Street could keep their rape simple did ya? Nope. When Wall Street does anything they do it with the power of lawyers and quants and armies of people whose job is to figure out how to maximize every tenth of a penny. So inevitably they would come up with a securitization scheme, ’cause like the scorpion on the frogs back “it’s their nature” to sting the frog and kill us all. 

Wall Street’s rental empire is entirely new. The single-family rental industry used to be the bailiwick of small-time mom-and-pop operations. But what makes this moment unprecedented is the financial alchemy that Blackstone added. In November, after many months of hype, Blackstone released history’s first rated bond backed by securitized rental payments. And once investor stripped over themselves in a rush to get it, Blackstone’s competitors announced that they, too, would develop similar securities as soon as possible…. 

According to interviews with economists, industry insiders and housing activists, people are more or less holding their collective breath, hoping that what looks like a duck, swims like a duck and quacks like a duck won’t crash the economy the same way the last flock of ducks did.

It’s worth the read to get all the details. And be out ahead of the next potential crash. Get your zombie protection kits here. Now that’s a get-rich-quick scheme.

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