Is Wall Street’s housing take over going to threaten markets across the country?
Some sensationalists have been seeking attention in the news by highlighting trends in rapidly rising home prices. But is Wall Street’s domination of the rental market really the biggest threat to the economy and financial stability of Americans?
Where are these trends really headed? How can individual investors and real estate investment companies step up to prevent any further bubbles? More importantly, how can they make opportunities for themselves in the process?
It’s no wonder U.S. residential home prices have been on the rise after years of uncertainty and depressed values. Still, the current pace of increases is nothing like what was seen in the previous boom. Virtually every housing markets’ properties are still selling below their previous peak values. Even once they reach that level again, historically proven housing cycles suggest they have many years of further growth to enjoy.
However, the truly forward thinking investor may want to keep a keen eye on what’s happening with rents. A new Bloomberg report and graphic in December 2013 brings back a stark reminder of just how many homes big hedge funds and private equity firms have scooped up over the last few years.
Those that lived through the recent crises should be alert to several potential threats this presents. It means a lot of market sway in the hands of a few institutions, as well as individuals retirement savings and control over market rents.
What happens when rents are pushed up so far they become unaffordable by the majority, and many are left unable to buy homes or rent? What if these companies go bankrupt and default on their financial responsibilities? Or are they purposely positioning themselves as being “too big to be allowed to fail?”
These giant funds have claimed their real estate investment strategies to be wildly profitable, and have resulted in executives seeing their personal fortunes swell in to the billions. However, it is also prudent to point out that the challenges of scale and their lack of experience in the residential arena may also be partially responsible for recent changes in strategy and tactics. Over the last few months, the biggest of these firms have announced moving into new niches. This certainly makes logical sense from a profit margin point of view and is definitely welcome news for smaller investors that are enjoying less competition.
Still, it could absolutely be argued that the U.S. market needs smaller investors and landlords to keep markets in balance and big brother in check. Specifically, this may be important in housing standards, providing reasonable customer service, and maintaining reasonable rents.
Right now technology is making it easier to level the playing field for everyone form the individual that wants to passively invest in real estate to those eager to ditch their day jobs and become landlords.
Still, unless good people stand up and get in and take advantage of this, the above mentioned threats could take it the other way and spur more disparity between classes.
