Corporations Are Pulling the Rug Away from The American Dream
Homes are now being bought up by big corporations and rented out.
A real estate developer sends in his team of auction buyers to purchase a piece of land. The developer puts a reserve on it — doesn’t go over $100,00. This team is seasoned, good at what they do. They are continually snagging up land, houses, and buildings that match their investment criteria. But not on this day.
Someone was bidding them up, and not on just on prime property, but on endless properties. Who were these masked men? Could the be shills for some big oil-rich country? Maybe they’re some branch of a secret cabal that does nothing but dirty deeds. Whomever they are they were overpaying for everything, and the sky was the limit. There are always quirks in auction sales, but this was odd and out of the ordinary. The real estate market continually changes, but not that quickly. That piece of land they were sent to bid on was coming up and the developer needs the parcel to complete a joint venture of single-family homes he’s tied up in. One of the team members calls him letting him know there’s no way he’s getting that parcel for $100,000. The developer tells him to go up to $120,000. Why bump heads for nickels and dimes on an important piece of property. The bidding starts and the property soars way over $120,000. They get back on the phone with the developer, and he tells him whatever it takes. The piece of land is key to his project, so he says he’ll figure a way to absorb it; maybe use that parcel to place a cluster of custom homes and make more money. The auction buyers wound up paying over double the intended price for the parcel. And these buyers from hell walked away with just about everything they saw as fit to buy.
The developer called a meeting. He wanted to get to the bottom of this fiasco and find out who these guys were. They found out. It was a company called Invitation Homes, and a subsidiary of the Blackstone Group, the world’s largest real-estate investor. They had been around buying up property for over a decade, and now they were in this particular developer’s backyard. Turns out Invitation Homes was on a long $10 billion spending spree, buying single-family homes mostly. On average they were spending $150 million a week making purchases through auction and all available outlets. They were knocking flippers and developers right out of the market and gobbling up everything at high costs. It didn’t seem to make sense until you figured out what the endgame was. Nobody has a crystal ball, but many times the answers to puzzles lie in the past. It is a wise thing to be a student of history. Dial back to the housing meltdown and the Too Big to Fail Crisis that happened on Wall Street, beginning at the end of 2007 then raging on until at least 2012 to 2013. All the lenders puckered up and would only do deals on A-Rated credit. If you didn’t have a FICO score that was in the middle seven-hundreds, good luck getting a home loan. There was cash out there. All the realtors turning over rocks looking for cash buyers, where are all the cash buyers? They were out there. Some were rich individuals taking advantage of a down market, but they were the rarity. It was the banks buying up houses.
Oh, those sneaky bastards. Head down to the foreclosure auction in those days was a waste of time, for investors and regular homebuyers looking for a deal to save some money. The banks would outbid you every time. They were buying back homes or holding on to foreclosed homes, remediating them, then renting them out until the market came back. A brilliant plan. The long line of the Roman Emperors would have never come up with a plan as sophisticated as this one. Get someone to cover the losses on your depreciating assets, while at the same time you’re building equity year over year. And when the equity comes back, and the market gets hot again — goodbye renter. They dumped those houses back on the market and made a killing. This was a land grab that eclipsed anything Napoleon ever concocted.
Now the game has changed, but not that much. Only the players got mixed around on the board to keep the public from getting bored. The banks will never stop their dirty little game, but it’s the big corporations that have stepped in and are now with their virtual pirate ships and Union Jack. Their sense of ruthlessness makes the banks appear tame. In 2018 they purchased one out of every 10 suburban homes sold in America. That is a lot of homes.
It’s not like 2008 where you had a surplus of homes sitting around empty. Now the game is supply and demand, and the demand for housing is sky high, sending the average home price through the roof. I live in Las Vegas, and when I first moved here in 1993 the average cost of a single-family home was $90,000. The first home I bought was about 2500 Square Feet, and with all the upgrades, carpet, tile, kitchen, the price tag was right around $130,000. Now, the average cost of a home in Las Vegas is nearing $400,000. A lot of water has flowed under the bridge since 1993, but still, that’s a big jump. Now corporations aren’t selling, they’re holding to drive the market up ever so higher. They aren’t offering homeownership, they’re offering rentals at inflated prices, which will create a ripple effect in all areas of living costs. You think we’re experiencing inflation now, wait and see what’s coming down the road. These corporations are systematically destroying the average worker’s ability to buy homes because when the houses that are being rented go back on the market the prices will be unaffordable. An adjustment in the market will eventually come and housing prices will equalize back to a sane median, but meanwhile, they are trying to turn average folk into vassals. The larger part of the American Dream has always been homeownership, and now that is being stripped away, turning us into a nation of renters. This is no joke. Not only are corporations depriving homeownership alone they are taking away the ability for the middle-class to gain wealth over time through property appreciation. If I didn’t have my home, there is no way I would ever be able to retire. Others are not that fortunate, especially young people who are having families and trying to break into the market.
When will this all be over? That I can’t tell you. I’ve been writing about real estate for years, and all one can ever predict is that things will change. I don’t know how long, I don’t know when, but it always changes. One takeaway from this threat about real estate is this: At the end of the day when the bubble finally bursts, the sad reality sets in that a property’s value is worth the land value and cost of building material. Values always fluctuate depending on the economic environment. It’s no different than the stock market. One day it’s up and on another day it’s down.