It’s Not a Housing Boom. It’s a Land Grab
|October 24, 2013||Posted by Staff under Financial|
In the past two months, home sales reached a level not seen since before the financial crisis in 2008, and the price of new homes reached their highest level in 20 years.
The value of the U.S. housing market has climbed back to $16 trillion, exactly where it was before the economic crisis. Home prices and permits for new construction are up by double digits nationwide.
These new gains might be an economic mirage. The reality of the current real estate renaissance is that the rich and those on Wall Street are raking in the cash while large segments of the population remain stuck in a downward, alternate housing reality.
Jobs are in short supply, wages are at historic lows, and credit for middle and working class Americans is tight. With their economic ladder into homeownership taken away, many Americans can no longer participate in the housing market.
In their absence, financial firms and rich global jetsetters are snapping up hundreds of millions of dollars of property each week.
Paying above market price and with cash, these firms are setting the pace for the housing market and crowding out non-wealthy Americans who would normally buy. As the Washington Post reports, seven out of 10 home sales in states like Florida are made by these institutional investors. In down-and-out markets like Atlanta, four out of 10 home purchases are made by investors.
Some apartments in New York’s still-under-construction 432 Park Ave.—which is set to the be the Western Hemisphere’s tallest residential building—sell for almost $100 million. The CEO of one of the city’s largest real estate firms told The New York Times that “there is not enough supply” of $50 million apartments. In some of the most expensive buildings, 351-square-foot studios go for $1.6 million.
But first time homeownership in the U.S. has fallen by 25 percent.
The irony of this foreclosure crisis is that it created the massive supply in homes that those very same financial institutions are now profiting from at a record pace. Having profited first from millions of risky mortgages and eventually taken away the homes that underwrote them, institutional investors are now purchasing those same foreclosed houses at rock bottom prices.