file photo by Boyd Loving
the staff of the Ridgewood blog
Ridgewood NJ, the US housing market is currently tight, expensive, and losing momentum. However, contrary to popular belief, Wall Street is not to blame for this situation.
Many legislators and retail professionals often point fingers at institutional buyers and private equity firms, accusing them of hoarding properties, flipping houses, and driving up prices. This narrative suggests that these large companies make it harder for average Americans to buy homes.
While the David-and-Goliath story is compelling (think GameStop), it’s not entirely accurate when it comes to the housing market. Financial giants do have far more resources than typical American households, but they rarely compete directly against them in bidding wars.
According to consultancy firm John Burns, institutional buyers hold less than 1% of the 105 million single-family homes in the US. The National Rental Home Council also reported that large investors accounted for only 0.74% of single-family home purchases at the beginning of the pandemic housing boom. In fact, big financial firms have a surprisingly small share of the housing market.
Investors of all kinds—Airbnb managers, landlords, mom-and-pop rental owners—do make up about a quarter of home purchases today, double the proportion from 2002. However, the real issue is not about “eating the rich,” but rather an economic imbalance that stems from over a decade of under-construction following the 2008 housing crash.
Supply simply cannot keep up with demand. The Commerce Department recently reported that new home sales in the US declined by 4.7% in April, more than expected, hitting 634,000 on a seasonally adjusted basis. This decline reflects the ongoing affordability crisis and limited inventory.
With mortgage rates hovering near 7% and home prices remaining high, many potential buyers are priced out of the market. Moreover, homeowners who secured lower rates during or before the pandemic are reluctant to sell, further limiting available inventory. This “lock-in” effect keeps both buyers and sellers on the sidelines.
Torsten Sløk, Apollo’s chief economist, noted last week that the US has an estimated deficit of about 2.3 million homes. Household formation continues to outpace home construction, contributing to the ongoing shortage.
Looking forward, we shouldn’t expect Wall Street to solve the housing crisis. JPMorgan, for instance, does not foresee homes becoming more affordable in the near future. However, if the Federal Reserve cuts interest rates, mortgage rates might eventually come down, potentially improving affordability.
“We think the path to affordability, for starter homes as well as the luxury market, is that wages rise to catch up to and meet the higher costs,” said Joe Seydl, senior markets economist at JPMorgan Private Bank.
In the end, the solution to the housing crisis lies in addressing the supply-demand imbalance and supporting economic policies that boost Americans’ purchasing power.
“With mortgage rates hovering near 7% and home prices remaining high”
When I got my first mortgage in 1978, I felt LUCKY that I was able to get a 9% note.
And in those days they seriously looked at verified DTI and LTV before they would approve you, and that only after a considerable period of time that approached the closing date.
Don’t forget they wanted 20% down, 10% if you got a “magic” mortgage.
AND they wanted to know the source of those funds.
It’s a false narrative being pushed by the Left. Same with Sleepy Joe and his corporate greed stuff regarding inflation.
Oh boy, we left junior high school economics along time ago so enough with the supply-demand bollocks. Real estate prices are good indicator of your economy’s true scale of inflation. And the economy is giant bag of empty, hot air because it’s been systematically looted, especially in the past few years with all the Covid shenanigans.
I love this genius at JPM: ‘People will be able to afford homes when their salaries rise to match the prevailing market prices.’ I.e. Let them eat cake.
In 1983 fixed rate mortgage was 18 percent. I gambled and took a 13.75 variable. Fortunately, a few years later rates ‘dropped’ and i got a fixed rate 9.75 for 15 years and paid it off early. All the bitching about the almost ‘free’ money of 3,4 percent rates with low down payments.
Low rate usury is still usury.
7 percent is hardly usury
By definition, ANY percent is usury.