Homeownership is at its lowest level in 18 years, but housing prices are rising. Why? Because banks are creating real estate scarcity by buying up homes and selectively stalling foreclosures.
CounterPunch contributor Mike Whitney reminds us that in recent years the Federal Reserve has kept lending rates low. This has allowed Private Equity firms to buy up lots of homes with money they have to pay very little to borrow. The result is the appearance that Americans are buying again. But as the homeownership rate shows, they’re not. Investors are, and this is keeping prices artificially high.
Five Star Institute economist Mark Lieberman has shown that banks are keeping more than 7 million homes off the market in this manner in order to “reduce listings, create the illusion of ‘scarcity,’ and push up prices,” Whitney reports. The housing market recovery, then, is “a complete hoax.”
This deception is made more malicious by the fact that high prices are keeping some Americans out of homes they would buy if they could afford them. Those people are renting instead, some from the banks that are snatching up homes.
But the banks don’t seem to be getting as much money out of their new tenants as they’d like. Analysts at Goldman Sachs recently said that “Rental yields on single-family homes … are compressed. Even among the 10 metro areas where our estimated 2013 rental yields are the highest, the average rental yield is only 5%.”
Poor bankers. Their ill-gotten investments aren’t turning out to be the big moneymakers they hoped they would be. Whitney comments:
So, even the best deals are only netting 5 percent. That’s not enough to wet the beak of the big players who thought they’d be raking in the moolah. Now that the price of distressed properties has skyrocketed, the Wall street guys are going to make even less, which means they’ll probably reduce their spending on housing and move on to more lucrative areas of investment. It might not happen tomorrow, but–as prices go up and profit margins narrow–it will happen. And that will leave the banks in the same situation they find themselves today, with millions of distressed homes in the pipeline and a dwindling pool of buyers.
As a consequence, the banks appear to be rushing a little less quickly to foreclose on homeowners who have stopped making mortgage payments. Moody’s reports that “Almost 40 percent of delinquent loans have been delinquent for three or more years.” This move—keeping some homeowners in their properties—reduces the total number of for sale houses and boosts the banks’ effort to create scarcity, which keeps the prices of their current inventory high and allows them to make a little more money on the homes they do sell.
Meanwhile, while banks calculate how best to game the system to get the maximum possible profit from their investments, homeowners in delinquency live in a state of constant insecurity and anxiety, uncertain of when they may be forced to leave their homes.
—Posted by Alexander Reed Kelly.
Ian Muttoo (CC BY-SA 2.0)