As home prices have soared in cities around the country, sales have cratered. The weather has been blamed, though the weather has been gorgeous in California where sales have crashed too, even in temporary boom town San Francisco. The “lack of inventory” and other excuses have been dragged out as well. In reality, homes have gotten too expensive….
Even for hedge funds, private equity funds, REITs, and other forms of Big Money with access to the Fed’s limitless free juice. They’d become powerful buyers over the last two years, gobbling up vacant homes sight-unseen by the thousands, in order to get them off the closely watched for-sale list and shuffle them over to the ignored for-rent list, where they might languish undisturbed. The hope is that they might rent them out somehow and sell them later at a big fat profit, to the dumb money via a ridiculously hyped IPO. But now their business model has collapsed.
“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it, and still make a reasonable return,” explained Peter Rose, a spokesman for Blackstone Group, a private equity giant whose real-estate division, Invitation Homes, has grown in two short years from nothing to the largest landlord in the country with 41,000 rental single-family houses to is name. “There was a moment in time where it made sense,” Rose said.
Not anymore. Blackstone already cut its purchases in California by 90% last year. It wasn’t alone. Another mega-buyer with access to nearly free money, Colony Capital, is doing the same thing. Oaktree Capital is trying to dump its portfolio of 500 homes before prices head south.
“Private capital made a lot of money early, and now they’re starting to pull back,” Dave Bragg, head of Residential Research at Green Street Advisors, told the LA Times. “Home prices are up significantly, and houses are definitely less attractive.”
With these mass-buyers out of the market, volumes have collapsed to a four-year low, according to Redfin, an electronic real-estate broker that covers 19 large metro areas around the country. Because, let’s face it, who can still afford to buy these homes?
Forget first-time buyers, the crux of a healthy housing market. In February, they only bought 28% of the homes, down from 30% a year earlier, down from the three-decade average of 40%, and down from the mid-40% range during good times. That hapless lot has been pushed out of the market a while ago.
And the middle-class household, supported by one earner? Teachers earning on average $69,300 in my beloved state of California, are facing a housing market where the median home lists for $485,000. With their salary, they can only afford a $260,000 home – or only 17.4% of the listed homes. Where exactly are all these high-income people who’re supposed to buy the remaining 82.6% of the homes? Sad fact: they don’t exist in those large numbers.
In the inland areas, teachers have a better chance for being able to buy a median home. But forget it in the coastal areas. My zany city of San Francisco topped the list: exactly 0% of the homes listed were within reach of a teacher’s salary [read…. California Housing Bubble: Now Even Teachers Can No Longer Afford To Buy A Home].
Turns out, even two middle-class incomes aren’t enough anymore for a median home in many cities around the country. Real wages that have stagnated for the last 25 years – thanks to that wondrous elixir of inflation – are now colliding with soaring home prices. Based on non-distressed homes listed on the Multiple Listing Service as of March 30, Redfinreports that in 40 large cities, only 10% of the homes are affordable on one median salary. It defined an affordable monthly payment as 28% or less of gross monthly income. And it found that “just 41% of homes currently for sale across 40 US cities are affordable for a family earning two median incomes.”
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