It seems like only yesterday I was lamenting the arrival of housing bubble 2.0 and the Fed’s nefarious policy of distributing ZERO-COGS (i.e. nearly zero short-term borrowing costs) to Wall Street speculators— which had then swooped into busted housing markets from Phoenix to Florida looking for the next big carry trade. This stampede of $5,000 suits riding John Deere lawnmowers into the likes of Scottsdale AZ had commenced less than 24 months ago, but already it had levitated prices by 25-50 percent in some of these markets.
It had also given rise to rivers of ink in the financial press about a “new asset class” called “buy-to-rent” single family homes. Right on time, it had already resuscitated Wall Street’s meth labs of financial innovation, which were busy “slicing and dicing” single-family rental streams into this year’s favorite flavor of toxic waste.
I also ventured the guess that these new Harvard Business School “landlords” would turn tail and run the minute prices stopped bounding upward because it was all a speculative frenzy, not an investment program, in the first place. They self-evidently had no core competence in managing 200,000 single family homes scattered all over America’s sand belt suburbia. In a post called “Housing Bubble 2.0 ” I further suggested:
“The idea that Colony Capital of Los Angeles or Blackstone of Park Avenue posses magical economies of scale in the nationwide single family rental market is just plain bonkers…..(this time) instead of millions of Main Street speculators who believed up to the very end that housing prices would rise to the sky, we now have a few thousand institutional speculators who will head out of town on their John Deere’s as fast as they came….”
Actually, that was all said, well, yesterday! Today a Bloomberg headline updated the story:
“Home Buying Binge Ends as Prices Surge”
Bloomberg reported that:
Blackstone Group LP (BX) is slowing its purchases of houses to rent amid soaring prices after a buying binge made it the biggest U.S. single-family home landlord. Blackstone’s acquisition pace has declined 70 percent from its peak last year, when the private equity firm was spending more than $100 million a week on properties”'(and) investing $8 billion since April 2012 to buy 43,000 homes in 14 cities…..”
As for the new “asset class” that only a few months ago was being touted as a sure bet for $1 trillion status, the #1 real estate honcho in all of Wall Street and long time head of Blackstone’s hit-and-run real estate campaigns, Jonathan Gray, told Bloomberg quite succinctly:
“The institutional wave has passed…..It’s at a much lower level than it was 12 or 24 months ago.”
Well, that’s bubble finance at work. Home prices in hundreds of Sunbelt cities had been painfully brought down to earth during 2008-20011. Affordability based on sound mortgage underwriting and honest household income was being slowly restored. Yet right then and there the lunatic QE policies of the Bernanke-Yellen claque catalyzed Wall Street’s short-lived housing stampede. In the process, honest wage-earners got squeezed out of the market and the get-rich-quick contagion was once again unleashed in America’s suburban expanse.
So the questions recurs: Does our arrogant monetary politburo have the slightest idea what it is doing? Sadly, the Bloomberg headline makes the answer abundantly clear. The Eccles Building is clueless!
Blackstone Group LP Global head of real estate Jonathan Gray
