Will hedge funds buy up all the homes in America and leave us all homeless? Maybe not.
I read a recent alarmist article online that stated that such-and-such hedge fund was going to commit millions if not billions of dollars into housing. The article was long and rambling, but the point (if there was one) was that eventually we would all be reduced to renters and have to pay whatever price they set.
And maybe there is a nugget of truth to that. After the real estate collapse of 2008, no one had the cash to snap up all those properties in places like Cape Coral. But some investors who were not broke, did snap them up, and as a result, more and more houses and condos were being owned by corporate landlords. It was a bit of a sea change.
Recently, it was revealed that these same corporate landlords are using an "AI" (trendy term meaning nothing - it's just an algorithm) program to establish what is a "fair" rent to charge. Some are arguing that this amounts to price collusion, as if enough landlords use this program, they all end up charging a uniform rent - and use each others' overpriced rentals as "comps" to raise their own rents.
If this bothers you and you vote Republican, I have no sympathy for you. If this bothers you and you say things like "both parties are the same, why bother voting?" I have no sympathy for you. This sort of thing is the direct result of a laissez-faire "hands off" business policy that is favored more heavily by one side than the other. If there really is price collusion in the marketplace, well, we do have anti-trust laws and if one party is in power, they might actually be used to bust this practice. If the other party is in power, then not. It is up to the voters to decide. Choose wisely.
The other half of the equation is the market. Already Redfin is dumping hundreds of millions of dollars worth of properties after they judged badly and overpaid for houses. They also failed to realize that flipping houses is a business of margins and boots-on-the-ground. The local guy with a pickup truck and an army of illegal immigrants can buy and flip a house on a budget. A big company cannot. And landlording? Even worse. Ten years ago we hired a "manager" to handle our condo for us. In retrospect, we realize we should have sold it back then as the price hasn't changed much in a decade and with fees, repairs, and other charges, we basically have broke even over a decade. If we were living there and managed it ourselves, we would have made money every year.
I expect that many of these corporate landlords will learn - or are learning - the same lesson. They will then decide to sell their properties in a down market, and lose even more money. A collapse in real estate prices would ensue - fueled not only by mass sell-offs, but the rising interest rates designed by the fed to lower housing prices by 20% or more.
So eventually the market will sort itself out - which is cold comfort to the person looking for a house or apartment today. And the guy who overpaid for a house today, thinking, "I'd better buy now before I am priced out of the market!" will get hurt, just as they did back in 2008.
There are things a tenant or home buyer can do to protect themselves, even in a screwy market. Number one is to not get caught up in the hype and believe that a home is an "investment." I have proven this theory wrong before. At best you break even on a home you occupy, which is not a bad deal compared to paying rent. There is a reason the IRS doesn't tax capital gains on your personal residence - they know you aren't making any money at it and to tax it would be cruel. Back in 2008, many people took out home equity loans as housing prices rose, spending the "phantom equity" in their houses. When housing values went down, they ended up underwater.
The second thing is to try to live as cheaply as possible in a bubble market - and bide your time until the market collapses. I see many people claiming they can't afford a two-bedroom apartment on their low-wage salary. I am not sure it is a Constitutional right for a single person to be able to afford a two-bedroom apartment on their income from working at Wendy's - but some folks think so. Downsize, get a roommate, live with your parents - whatever it takes. If you cough up big bucks for a big place, you won't be able to save money to jump when the market softens. But of course, this is hard to do. Then again, I had to do it. More than once!
Third thing? Don't invest in a hedge fund that is buying and renting out houses! Expect a bloodbath, shortly.
2023 will be an interesting year. The chickens, as they say, are coming home to roost, and we are due for the biggest hangover of the new Century. Many people are over-burdened with debt and have tapped out their savings, and although many companies are still hiring, we are seeing massive layoffs in the "tech-that-is-not-tech" sector as well as collapse of share prices. Folks are cutting back on spending, due to inflation, and this will lead to layoffs in the retail and manufacturing sectors. It seems people are waking up as if from a dream and thinking, "Bitcoin. Theranos. Donald Trump. What on earth were we thinking?" A year ago, such talk would be heresy, today it is doctrine. Maybe people aren't as crazy as I thought.
Or as one famous President put it, You can't fool all the people all the time.
UPDATE: The matching shoe to this hedge-fund real-estate bubble is the AirBnB-loan based bubble, where people are buying houses and over-paying for them based on rosy overnight rental projections. A similar thing is happening in the UK, with "buy-to-let" loans, and apparently a lot of loans are going to go bust. Schemes of avarice always fall apart when you run out of chumps and fools to satisfy your schemes. Sort of like Uber. As soon as they found enough chump users to pay "surge" pricing, sure enough, they ran out of drivers. Never made a profit - never will.
