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It’s been a while since we heard about the “top 1%”. The protests that spread the globe earlier in the year have fallen under the radar in Australia – buried deep below the Thompson affair and global “wows”. However, according to recent reports, if you live in the United States, the 1% are busy bulk buying thousands of real estate foreclosures and taking full advantage of what’s becoming – in some states – a very tight rental market.
The once “American dream” that fueled a nation with a similar owner-occupancy rate to that of Australia is slowly turning into a rental nation. It’s no secret that US recovery from the financial crisis has been little more than a halfhearted limp. If owner-occupiers have managed to hold onto their homes, it’s been at a substantial capital loss. Aside from the large number of foreclosures – which according to a recent report in the New York Times has been in the order of some 4 million since 2007, potential home owners now find it virtually impossible to access finance. This, along with the pressures of record high unemployment, has begun to fuel an unparalleled rental boom.
For example, in San Francisco the vacancy rate has dropped to around 2% compared with 5% in 2009. Property managers are charging fees simply for placing an application, and rents have increased some 13% since last year. As one report puts it – trying to access rental accommodation has turned into a ‘competitive sport’, and it’s a similar story in other cities such as New York, Los Angeles and Boston.
Whether the US buying market has bottomed out or not is debatable and like Australia, it’s impossible to draw broad conclusions because each state suffers its own unique conditions. However, recently Gary Anderson reported in Business Insider that the number of bank-owned homes for sale in the most affected market of the US – Las Vegas – has fallen from 18,000 to just 1,600 in a remarkably short period of time. The suggestion mooted by Anderson is that banks have been marketing these foreclosures for a period of 30 days at a “real” price, after which – if not sold – they are taken off the market and offered in bulk to investors, who enter a bidding war to purchase the homes at “wholesale” prices. There is no evidence for this in the article and it’s also worth noting that Las Vegas has recently passed a bill requiring banks to use the more expensive “judicial foreclosure” process, which would add to the reduced figures. However, there’s plenty of evidence that points towards a massive Wall Street buying spree of foreclosed homes which is creating a huge disparity in the market.
The US government is moving ahead with a trial project to sell big pools of foreclosed family homes owned by Fannie May, in some of the hardest-hit markets in America. The initiative has created what Reuters report as a "Wall Street investing craze” and the L A Times suggests “Wall Street hedge funds and private equity firms" are " positioning themselves to snap up foreclosed homes and convert them into rental units”.
Of course, when you have a large number of investors purchasing affordable family homes that are the bread and butter of the owner-occupier market, you not only have speculation potentially inflating prices, you also have more distressed potential home buyers firmly stuck on the rental ladder. It’s important to emphasise the US housing bubble resulted from a sub-prime lending crisis and not from large numbers of cash buyers looking for positive rental returns. Therefore, it would be unwise to jump to any broad conclusions that this is the start of another potential boom-and-bust “bubble” cycle. However, the market tipping in favour of investors over owner-occupiers has led to many wondering if the America dream has become just that – a dream. Such is the outcry, some 15,000 realtors recently gathered in Washington DC to protest against the investor-dominated market. As one realtor on the video states – “we’re here to protect home ownership and the American dream!”
More on pages 2 and 3