The rise of modern day real estate feudalism: How a majority of Americans are missing out on the gains of the new rentier class.

From Doctor Housing Bubble

 

Feudalism was a set of customs in medieval Europe that setup a society in which relationships were based on holding land in exchange for service and labor.  There is a modern day movement that is silently pushing out the middle class from truly owning real estate.  In my view, there is no coincidence with the contracting US middle class and the massive expansion of “all cash” buyers.  For most working Americans buying a home with all cash is so far removed from economic reality that it is not even an option.  This used to be historically the case.  However, since the Fed adjusted accounting rules and banks were able to control how inventory leaked out into the market, we suddenly have the highest number of cash and investors diving into the real estate market with alternative financing.  People in Nevada, Arizona, and parts of Florida are competing with 50 to 60 percent of investors just to buy a home.  In California the figure has been over 30 percent going back to 2009.  Lower rates are a bigger pull for large investors since the safe trade in bonds or Treasuries is no longer there.  So for this group, those 4 to 5 percent cap rate yields seem more attractive than the nearly non-existent rates on Treasuries.  So we now have a system in place that is crushing the US homeownership rate and is shifting more property into concentrated hands.

 

First step, control that inventory

There was an interesting trend that started early this year.  Nationwide inventory was starting to increase.  Yet once rates spiked in the summer, that trend completely reversed:

inventory back and then gone

Banks have an entire menu of methods of slowing down inventory that hits the market.  Slowly since 2007, banks have figured out better methods of leaking out inventory.  For example, freezing mark-to-market accounting and all the other programs that allowed for mortgage modifications.  In some cases, the foreclosure process was dragged out 3 to 4 years!  Yet the public face was to help average people but in reality, what has really occurred is a major shift from US household ownership of properties to investors swooping in and picking up properties on the cheap courtesy of modern day banking policy.  In the end 5,000,000 Americans (and counting) still lost their homes via foreclosure and continue to do so.  The massive spike in prices is allowing more people to exit mortgages they simply cannot afford by simply selling.

Yet the drop in inventory is adding pressure to a market where sales are still weak.  What you have is a fully controlled “market” where the Fed is buying up virtually all mortgages and investors instead of focusing on companies or more productive economic activity are becoming large scale landlords.

Prices up and homeownership down

Prices are up yet the homeownership rate in the US continues to fall:

us homeownership rate

How is this even feasible?  For one, you might have one investor, purchasing a ton of properties:

“(Bloomberg) The market for rental-home securities may grow as large as $900 billion, assuming 15 percent of annual home purchases are conducted by investors and 35 percent of those and existing rental-home owners turn to the market for financing, according to Keefe Bruyette & Woods Inc. Banks have been the main source of financing for new property landlords such as Colony Capital LLC and Blackstone, which has spent $7.5 billion on about 40,000 houses.”

Instead of having 40,000 families buying those homes, you have a couple corporate owners.  For nearly half a decade 30 percent of all US single home buying is going to investors.  Historically, this figure was closer to 10 percent.  That is a dramatic shift in the US real estate market.  Did becoming a landlord suddenly become sexy for Wall Street?

With prices up dramatically in the last year including going up close to 30 percent in California, regular families are having a tougher time competing with the small amount of inventory available when investors are battling it out.  What is interesting is also the number of rentals on the market has declined causing rents to spike.  Household incomes are being eaten up either by higher home prices or higher rents as more households shift to renting adding pressure to the low supply of rentals.  Ironically, we are not seeing a flood of these purchases hit the rental inventory market.  Some are trying to flip which might explain the lack of rental inventory but this would add to overall sales inventory which has also fallen.  This isn’t a full market so hard to guess what the next move is.

New home sales – make a fuss for nothing

There was a big splash being made about the “massive” jump in new home sales.  You want to see this big jump in context?

new home sales

The chart above sums it up.  All the action is happening in the existing home sale market and investors are dominating this game.

Cash buying

It is very clear that one-third of single family home purchases have gone to investors since 2009.  However, some estimates put this figure a bit higher:

GS-housing-cash

all cash buyers

A safe number is one-third.  In markets like Nevada, Arizona, and Florida it is closer to half.  Even in Las Vegas, what regular working family is going to have $100,000 sitting around to make an all-cash offer?  In California where a shack goes for $500,000 the game is even more bizarre.  Yet people have to work and live somewhere.  People for the most part are idle creatures.  In California you have the conundrum of golden real estate handcuffs via Prop 13.  People can sell and move to another state and have a healthy retirement but would rather eat cat food and live in a shack with low tax rates.  It is an interesting trend especially with many baby boomers now seeing their kids coming back home with loads of college debt.

Rental market getting squeezed

The low supply and large investor buying is now causing a drop in the rental vacancy rate:

rental market

Because of this rents are moving up but in some markets are still below the record highs:

median rent

Source:  Quandl, Zillow

However nationwide rents are at an all-time record high:

nationwide rents

Low inventory is a symptom of market manipulation.  Too many odd incentives and banking shenanigans have created a distorted market.  The Fed now owns 12 percent of the mortgage market and is essentially the only buyer of mortgage backed securities.  Look at all the above data.  Who do you think is really winning here?  Rents are higher.  Home prices are higher.  Yet the menu of good employment opportunities is limited.  Incomes are hardly increasing.  The younger generation is massively in student debt and they are having a tough time finding good work.

What an odd game of real estate we are living in.

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VAPORIZED: Detroit Obliterates Retirement Funds: 80% Cuts to Pensioners: “This Is Going to Affect Everyone”

Mac Slavo
December 3rd, 2013
SHTFplan.com

 

detroit-bankrupt

Though a decade ago civil servants and union members would never have believed it could happen, the stark reality of the situation came to pass this morning.

We now know the answer to the question: What happens when a government makes promises it can’t keep and borrows so much money it can never be repaid?

This morning a judge overseeing the City of Detroit’s fiscal sustainability ruled that the City can be afforded bankruptcy protection, meaning that all 100,000 of its creditors now stand to lose a significant portion of monies owed to them.

The most notable victims are the tens of thousands of retirees living off of pensions – many of whom will see an 80% obliteration of the retirement funds they believed they’d receive until they died.

Creditor attorneys have repeatedly speculated they expect Orr’s plan of adjustment to mirror the June 14 proposal he offered creditors to avoid bankruptcy. That deal proposed giving unsecured creditors such as pensioners and bondholders a $2 billion note for $11.5 billion in estimated debts — or less than 18 cents for every dollar owed.

Most of those affected assumed the government would simply find a way to borrow more money or fabricate it out of thin air. They were wrong and now they are paying the price:

“Oh my, oh my. Everyone is worried. When we think about what could happen, it’s scary,” said Larsen, 85, who moved to Palm Harbor, Fla., outside of Tampa after he retired in 1976.

“If they take our health insurance? Oh god. Cutting pensions? It’s terrible. The city of Detroit was our pride. Honest to goodness. We loved it.”

“We are all worried,” said Nancy Schmidt, the group’s secretary. “This is going to affect everyone in different ways. If it comes to fruition, I’ve got two empty bedrooms and I may end up having to rent them out.”

“My net pension is $2,300 a month,” said Kammer, 77, who moved to Englewood, Fla., not long after retiring with a disability in 1977.

“I could make it for a while, go through savings, but pretty soon, I’d end up in bankruptcy.”

“(Retirees) feel like something that they’ve earned and were promised is being taken away from when they’re not in a position in their lives to plan for it and fight back,” Plecha said. “They’re at a time in their lives when they’re most vulnerable.”

Detroit is the first and they have now set a precedent for other cities in similar situations. You can be assured that more will follow.

First it will be the cities. Then the states will go under. And finally, the Grand-Poobah – our own Federal government. Detroit’s debts are pocket change compared to the $200 trillion in future liabilities owed by the United States of America.

If you are depending on a government retirement package to be there for you for the rest of your life, you’d better think again. Over twenty thousand Detroit retirees thought the same thing – and as of today they have been wiped out.

When this crisis hits the Federal Government – and it will – you’d better be ready for them to take drastic measures. This means they’ll be forced to not only cut retirement benefits promised to federal employees, but will make the case that if they have to give up their retirement funds, you’ll have to give up your 401k, IRA or personal savings.

Sounds impossible, right? Congressional members have already gotten the ball rolling on a nationalization of America’s retirement funds, and when they are ready to do it they’ll pass the legislation just like they did when they seized 1/6th of our economy by nationalizing health care.

They are coming for the money – YOUR money – because they will be left with no other choice.

If you’re not planning on a secondary income stream or preserving wealth in the form ofgold and silver, productive land, or other tangible assets, you’ll end up just like the retirees from Detroit. Having additional resources, like a well stocked long-term pantryand a preparedness plan for financial disaster, can mean the difference between living in poverty or thriving when best laid plans fall apart.

Plan for the worst, because that’s what’s coming.

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The Housing Market And The World Economy Is Being Held Together With Tape

The Housing Market And The World Economy Is Being Held Together With Tape, The Central Bankers Are Manipulating Everything So The People Don’t Realize What Is Going On

A mass shooting took place in a mall in NJ. These types of mass shootings will increase to push the Governments agenda forward. The Government needs to disarm the American people and the only way to do this is to make the American people push for gun control. The mass shootings are also used to train the population for martial law, military style police, listen to the police, do what they say and everything will be ok. The housing market and the world economy is being held together with tape at this point, but the central bankers are continually manipulating everything so the people don’t realize what is going on. http://http://www.youtube.com/watch?v=G2OwE0n-jpA

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It’s A Great Time To Be A Real Estate Investor

The “Oh Crap” Moment For Housing Is Now In The Can

Tyler Durden's picture

Submitted by Tyler Durden on 11/02/2013 17:17 -0400

Real estate guru Mark Hanson updates his housing view following this week’s dismal housing industry data: 

  • Sept. Pending Sales… the largest MoM drop since Sept 2001… not 2011… yes, 2001.

Don’t let them tell you ‘this is normal for Sept’. The ‘oh-crap’ moment is now in the can. Going forward, “Existing Sales” volume will disappoint on a YoY basis for several quarters. There is no way around it…

 

Fool me once, shame on you; fool me twice, shame on me; fool me thrice, shame on the Fed…

 

Via Mark Hanson,

Existing Sales is terribly backward looking and you can’t change history no matter how hard certain parties try.

‘House Prices’ have already fallen sharply post-surge and continue to weaken — prices are set at contract but not recorded until “closing” — simply awaiting printing by lagging surveys.

Contrary to ‘New’ Home Sales, Existing Sales are where the Fed’s go-go juice really showed up thanks to the Twist/QE 3, 4 increase in “purchasing power” beginning in Q4 2011 and the new-era “investor” rush to market in mid-2012. This is evident in the demand divergence between the two series. As such, the “post-surge” housing market “demand collapse” will be much more evident in this series than it was by the 27% MoM drop in New Home Sales in July.

In short, over the next few months we will see the two series quickly “converge” — Existing Sales weaken considerably to be more in-line with the weak builder demand — reflecting conditions more akin to the “hangover” period following the sunset of the Homebuyer Tax Credit.

Along with this comes lower YoY Existing and New Sales volume along with down trending MoM house prices as far out as July 2014, at which point house prices have a good shot at being negative YoY as well.

Sept Pending Home Sales Low-lights

1) US Pendings Fell 21.1% MoM on an NSA basis (down more not including last month’s revision), the most on record for any Sept since Sept 2001…that’s a terrible period to comp against.

2) On a YoY basis Pendings were down 4.3% on a daily basis (Sept 2013 had 1 extra business day YoY). And remember, in Sept demand was still being pulled forward due to rates and fear of Gov’t shutdown.

3) Levels of Sept Pendings virtually ensure Oct through April Existing Sales” are lower YoY. A year ago volume outperformed (muted seasonality) in winter & spring, as new-era “investors” all dove in at the same time. This year the market will underperform (heavier than normal seasonality) due to the stimulus “hangover”. This delta will produce meaningful YoY Existing Sales declines especially through April 2014.

4) Leading indicating Western region absolute Pending Sales lowest since 2007. 

5) Heavily weighted, leading-indicating Northeast & West Sept Pendings down 31% & 20% MoM NSA respectively, also 12-year record drops.

6) YoY, Northeast & West Pendings down YoY by 3.1% and 5.2% respectively…the first YoY drop since after the 2010 sunset of the Homebuyer Tax Credit.

7) MoM, Sept national Pendings dropped 54% and 40% more than the 10-year average and post housing market crash avg Sept respective seasonal drops.

**note, items 5 & 6 were straight from NAR and not normalized for more business days this Sept than last. In short, the YoY drop is larger than reflected in 5 & 6.

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