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The Vast Spider Web Of Businesses That Have Sprung Up To Support Investors

A report from the Orange County Register in California. “Chapman University economist Jim Doti sees no housing bubble to burst in Orange County. He explains that local housing prices — easily double national benchmarks — are ‘economically rationale given the county’s higher median income, amenities and proximity to the Pacific coast.'”

“Still, Doti notes significant risks in local housing tied to real estate’s three magic words: Jobs, jobs, jobs! ‘There is no question O.C. housing prices will fall more dramatically when we have our next recession,’ he says. ‘The drop in median income caused by the recession will have an exponentially negative impact on prices. But that correction will be temporary and will eventually be ‘corrected’ when incomes increase again.'”

The Denver Channel in Colorado. “For first-time home buyers, finding the right place can be daunting, even scary at times — especially in a market as hot as metro Denver. Our experts say evolving buyer programs can help make down payments cheap or even free.”

“‘There are positives for doing 20 percent, but the reality is, you could do it for one to three percent down,’ said Lori Abbey with Compass Realty. ‘It doesn’t take much time at all to build that equity. All of a sudden, they have $100,000 in equity, which is an asset, which is, effectively, a savings plan.'”

From Magic Valley in Idaho. “‘I don’t think this year’s market is as hot as last year’s,’ Gooding County Assessor Justin Baldwin said. One kind of property, in particular, has seen a marked increase in value: Starter homes priced up to $220,000. Baldwin said properties in that sweet spot ‘sell like hotcakes.’ Homes that were upper-end back in the ’70s and ’80s s are also in high demand.”

“Those two kinds of properties stand out as useful market indicators, Baldwin explained. They’re often the first to start selling in a good economy, and the first to foreclose at the onset of a downturn. Baldwin thinks the market could level out soon. ‘Right now, I want to say we’re nearing the crest of a boom,’ he said.”

“While individual property owners, especially those on fixed incomes, can be frustrated by large valuation increases, government officials typically see property value increases as indicators of good economic times. ‘(It’s) what you want to see,’ Baldwin said. ‘No one wants to see a depreciating asset.'”

The New York Times. “The same story is playing out across the country. Investors, fueled by Wall Street capital, are snapping up much of what remains. At first, the flood of capital seemed like a one-time opportunity arising from the collapse of the residential real estate market. Once the bargains dried up, the investors were expected to stop buying.”

“Except they didn’t stop. In 2018, investors bought about 1 in 5 starter homes in the United States (defined as priced in the bottom third of the local market), according to CoreLogic. That was even higher than in the early years after the Great Recession and about double the level of two decades ago. In the most frenzied markets, investors bought close to half of the most affordable homes sold last year, and as much as a quarter of all single-family homes.”

“Hard-money lenders like Angel Oak are just one thread of the vast spider web of businesses that have sprung up to support investors. ‘Wall Street has taken an asset class that used to be something hokey and made it the real deal,’ said Martin Kay, founder of Entera, an 18-month-old platform for real estate investors.”

“To existing residents, the flood of investors can feel like a threat. ‘It’s almost like locusts came down and bought everything up,’ said Robby Caban, a neighborhood activist in Atlanta.”

From The M Report. “Dr. Ralph McLaughlin, Deputy Chief Economist and Executive of Research and Insights at CoreLogic, noted what the latest HPI’s data means for the housing market. ‘The U.S. housing market moderation has now lasted a year, driven by considerable slowing in the nation’s most expensive markets,’ McLaughlin stated. ‘While the slowdown is most pronounced in these areas, all of the 20-city markets are slowing, suggesting the cooldown has broken from its confines in the West.'”

“Six of the 85 largest metro’s tracked by Redfin saw year-over-year declines in their median sale price. San Jose, California’s 6% drop was the biggest in the nation, and was followed by New York, New York (-2.5%), and Honolulu, Hawaii (-2.2%).”

From Staten Island Live in New York. “After several years of a ‘seller’s market,’ where home prices were inflated, real estate professionals say houses are now commanding ‘market vales.’ ‘I frankly think the market is going back to [favor] buyers and [prices] are reasonable, affordable numbers — not out of control numbers,’ said Neila Nuzzi, a broker in Richmond.”

“‘The pace of home sales had tapered off a bit from last years feverish pace, which is healthy for the market,’ said Frank J. Rizzo, president of Cornerstone Realty in Annadale.”

The Pacific Coast Business Times in California. “It seems like every week I read an article regarding California’s housing crisis. I first looked up the median home price in Ventura County on the California Association of Realtors website and learned that it was $650,000 as of April. Then I went to the Census Bureau’s website and found that the median income in Ventura County is $81,972, while the average income is $107,872.”

“Finally, I called my friend Kelly Marsh, who is the vice president of Cornerstone Home Lending in Santa Barbara. She suggested that I use a property tax rate of 1.25 percent, an interest rate of 4.125 percent and a homeowners insurance cost of $75 per month.”

“I fed all of this information into an amortization table. What I found shocked me. Assuming that a household can afford the 20 percent down payment of $130,000, total housing costs for a median home in Ventura County are $39,267 a year. That represents 47.9 percent of the median income and 36.4 percent of the average income.”

“According to Marsh, most lenders have a maximum debt-to-income level of 45 percent but can increase that limit to 50 percent for strong clients. Thus, even if a household in Ventura County earns the median income and can afford the 20 percent down payment, they will not meet the 45 percent debt-to-income threshold.”

“Keep in mind that this does not include other debt the household may have. I did not include estimates for car loans, student loans or any other type of debt. Thus, assuming the household is debt-free and can afford the down payment, it still will not meet the 45 percent debt-to-income threshold. I found that a household has to earn $87,260 to meet the 45 percent threshold. That is $5,288 more than the current level of median income.”

“The situation is even worse in Santa Barbara County, where the median and mean incomes are less than Ventura County at $68,023 and $97,025, respectively, but the median-priced home is more at $760,500. In San Luis Obispo County, a median-priced home is the same as Ventura County but the median and mean incomes are less at $67,175 and $87,933, respectively.”

“The bottom line, in my opinion, is that we need to start thinking of our housing problem on multiple levels. We need to start addressing the median-income problem as well as the low-income problem.”

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This Post Has 48 Comments

  1. ‘There is no question O.C. housing prices will fall more dramatically when we have our next recession…The drop in median income caused by the recession will have an exponentially negative impact on prices. But that correction will be temporary and will eventually be ‘corrected’ when incomes increase again’

    So get out there and take one for the team!

  2. ‘Hard-money lenders like Angel Oak are just one thread of the vast spider web of businesses that have sprung up to support investors. ‘Wall Street has taken an asset class that used to be something hokey and made it the real deal,’ said Martin Kay, founder of Entera, an 18-month-old platform for real estate investors’

    And you can buy a shack with a click on your phone. Sound lending!

  3. “Chapman University economist Jim Doti sees no housing bubble to burst in Orange County. He explains that local housing prices — easily double national benchmarks — are ‘economically rationale given the county’s higher median income, amenities and proximity to the Pacific coast.’”

    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” — Upton Sinclair

  4. ‘I don’t think this year’s market is as hot as last year’s’

    One of these things is not like the other…

    ‘Right now, I want to say we’re nearing the crest of a boom’

  5. ‘According to Marsh, most lenders have a maximum debt-to-income level of 45 percent but can increase that limit to 50 percent for strong clients’

    So the more broke-ass you are the stronger you are…

    1. And don’t they use gross income, not net? I cannot imagine what it must be like to have a 30 year payment at 50% of gross income.

      1. “I cannot imagine what it must be like to have a 30 year payment at 50% of gross income.”

        A nightmare that you can’t wake up from, taxman is going to take 25%, that leaves 25% for food, utilities, property taxes, car payment, insurance, fuel, entertainment.

        Just shoot me…please.

        2. “…that leaves 25% for food, utilities, property taxes, car payment, insurance, fuel, entertainment.”

          “Death of a Salesman” is widely considered to be one of the greatest plays of the 20th century. In the 21st century, the tragedy will be, “Death of the Middle-class Family.”

          1. “Death of a Salesman”

            Absolutely depressing. Saw it on Broadway with Brian Dennehy in 1999.

  6. ‘Our experts say evolving buyer programs can help make down payments cheap or even free’

    Strong lending!

    ‘There are positives for doing 20 percent, but the reality is, you could do it for one to three percent down…It doesn’t take much time at all to build that equity. All of a sudden, they have $100,000 in equity, which is an asset, which is, effectively, a savings plan’

    That’s right folks, borrow several hundred grand with nothing down and you are saving up a storm!

    2. I think you get so many desperate buyers who are enticed by this form of magical wealth creation because the housing bubble has made it so difficult to save up. With rents also sky high, the average family cannot figure out how to save up 20%. So 3.5% is now what the bar has been lowered to, and even then it is too high so there are all these programs designed to gift the down payment money, all in the hopes of “getting on the property ladder” and experiencing $100k in unearned appreciation. The American Dream is being touted as speculation and unearned wealth. Forget about working for a living and saving. It’s all speculation now.

    3. In skool we learned that borrowing on margin is what caused the Great Depression.

      “It’s deja vu all over again.” -Yogi Berra

      1. These reports keep talking about all cash buyers. From what I read, everybody is borrowing.

        1. I think there are tons of all cash buyers out there, it’s just not the average joe. I know there are some deep pocketed investors who are scooping up single family homes in the Salt Lake area right now. They are just plucking them up left and right.

          1. They days of a young couple buying a fixer at a courthouse auction for back taxes are long gone. Now it’s indentured debt servitude for them. Today’s billionaire “needs” another billion, so phuc these young families!

      1. A lot of FBs who made shack purchasing decisions based on “our experts” touted by that channel are going to be forever inoculated against trusting the MSM once the promised appreciation gains instead turn to crushing housing losses, to borrow a phrase from a Great American.

  7. “The same story is playing out across the country. Investors, fueled by Wall Street capital, are snapping up much of what remains. At first, the flood of capital seemed like a one-time opportunity arising from the collapse of the residential real estate market.

    Of course the NYT, flagship of the Oligopoly media, fails to mention the role of the Fed in printing up trillions in “Wall Street capital” aka Yellen Bux so its financial sector accomplices could hoover up the distressed assets of the proles in flyover country.

    1. That’s the thing, they aren’t gambling with distressed shacks now. Largely these idiots are paying market rate, with hard money costs no less, and betting a lick of paint and a few months passing will hit the jackpot! Jeebus, this recent revelation by the REIC has to be a high-water mark of some kind.

      “There’s no speculation, but investors haven’t been this nuts in 20 years!”

  8. “To existing residents, the flood of investors can feel like a threat. ‘It’s almost like locusts came down and bought everything up,’ said Robby Caban, a neighborhood activist in Atlanta.”

    Almost? Unless he means worse than locusts.

      1. Miracle of the gulls:

        “The miracle of the gulls is an 1848 event often credited by Latter-day Saints (“Mormons”) for saving the Mormon pioneers’ second harvest in the Salt Lake Valley. According to accounts, seagulls miraculously saved the 1848 crops by eating thousands of insects that were devouring their fields.”

        “According to traditional accounts,[2] legions of gulls appeared by June 9, 1848 following fervent prayers by the pioneer farmers. It is said that these birds, native to the Great Salt Lake, ate mass quantities of crickets, drank some water, regurgitated, and continued eating more crickets over a two-week period. The pioneers saw the gulls’ arrival as a miracle, and the story was recounted from the pulpit by church leaders.”

  9. “To existing residents, the flood of investors can feel like a threat. ‘It’s almost like locusts came down and bought everything up,’ said Robby Caban, a neighborhood activist in Atlanta.”

    Almost? Unless he means worse than locusts.

  10. Anybody else watching this Sh!tcoin bubble with awe? It hit $11,250 overnight. I don’t get it. Even seemingly intelligent people are calling it “digital gold.” The parabolic trajectory of prices this time mirror the last spike.

    2. One story I saw on u-tube made me sick. This slick salesman was taking investors out on a bus to bottom level trailer parks to buy.

      The sales pitch was that the rents could be raised because the tenants were felons, perverts and addics therefore they had no option to go elsewhere. In other words, they were at the bottom of the barrel already so they would be forced to pay the higher rents.

      The salesman laughed and continued on with what a great opportunity it was to invest in this park based on the low life tenants being stuck.
      The equity locust sweep in and buys up end user shacks on every level , making it so that buyers are stuck with speculators easy money gains.

      Buyers could of said no to buying a overpriced shack, or boycott high rents, but they got in on the Ponzi scheme. It’s either out of fear of being priced out forever or they want some easy money, or they just need a place to live.

      Investors become the price makers until there are no FB”s left.

      It should be that wages set the prices, and that housing is for end user shelter.

      1. “Buyers could of said no to buying a overpriced shack, or boycott high rents, but they got in on the Ponzi scheme. It’s either out of fear of being priced out forever or they want some easy money, or they just need a place to live.”

        It’s because the fed has lowered interest rates such that pensioner’s savings are eroding if held in an account. Give it enough time and we’ll be out in the streets fighting each other over scraps of meat a la the Bolivarian Republic of Venezuela.

    3. Botcoin seems to be saying that the Chinese government has not seen reality yet and will continue the trade war causing capital to flee China. Trump means it when he says he is fine with collecting the tariffs. Chinese companies will have to eat the tariffs to stay competitive with Vietnam even if it means losing money as long as they are just ignoring the sunk costs to their businesses. Since if they do not sell many will lose even more.

    4. NPR Planet Money team did a story on Facebook’s foray into crypto currency (Libra). Their explanation was that if Facebook, Uber, Lyft, Spotify, Mastercard, Visa, and Ebay are behind this digital currency it sort of legitimizes BitCoin. Their conclusion was that BitCoin was getting love because of Facebook’s announcement regarding Libra.

      Not saying this is the case. I think there is probably something to that, but also probably you continue to have Chinese and foreign money using BitCoin to get money out of the country and into more stable countries.

  11. ‘The pace of home sales had tapered off a bit from last years feverish pace, which is healthy for the market’

    How many towns and cities have seen this feverish pace, at exactly the same time?

    Eeee-bola Staten Island!

  12. “The bottom line, in my opinion, is that we need to start thinking of our housing problem on multiple levels. We need to start addressing the median-income problem as well as the low-income problem.”

    Ohhhh dear! Whatever we do, let’s not ask the Government to solve the problem. This time, let the “investors” and Banks fail.

    1. “This time, let the ‘investors’ and Banks fail.”

      I agree with about half of what you are saying.

  13. The juggernaut of financialization moves forward, steamrolling and strip-mining everything and everyone in its path.

    “Hard-money lenders like Angel Oak are just one thread of the vast spider web of businesses that have sprung up to support investors. ‘Wall Street has taken an asset class that used to be something hokey and made it the real deal,’ said Martin Kay, founder of Entera, an 18-month-old platform for real estate investors.”

    “To existing residents, the flood of investors can feel like a threat. ‘It’s almost like locusts came down and bought everything up,’ said Robby Caban, a neighborhood activist in Atlanta.”

    https://www.foreignaffairs.com/articles/united-states/2019-06-11/faith-based-finance
    Faith-Based Finance
    How Wall Street Became a Cult of Risk
    By Gillian Tett June 11, 2019
    (Registration required)
    “To avoid another global financial crisis, the United States needs to make sure that the financial system is the servant of the broader economy rather than it’s master.”
    – (Too late!)

    https://www.thestar.com/opinion/star-columnists/2019/04/22/the-film-push-shows-how-housing-has-become-a-commodity-for-the-benefit-of-the-wealthy.html
    Star Columnists | Opinion
    The film Push shows how housing has become a commodity for the benefit of the wealthy
    By Christopher Hume | Star Columnist
    Mon., April 22, 2019

    “In cities around the world, housing is becoming a dwelling place for money rather than people.

    Toronto is no exception; for buyers and renters finding somewhere to live here grows harder every day. As costs go through the roof, an increasing number of Torontonians, especially the young, find themselves forced out of town.

    In London, U.K., whole neighbourhoods have been hollowed out as they are bought up by foreign investors and private equity firms. The new owners, who have little or no interest in letting their properties, would rather leave them empty than deal with the hassle of tenants and their endless demands for basic services.

    As Swedish director Fredrik Gertten makes clear in his compelling documentary, Push, the financial sector has turned housing into a commodity, one that can be bought and sold dozens of times in the course of an hour. The notion, established by the United Nations, that housing is a basic human right now seems an antiquated nicety, a leftover from a more ambitious age. What remains now is the right of the rich to get richer.

    “Finance is an extractive sector,” notes Dutch-American sociologist Saskia Sassen in one of several on-camera interviews. “It might as well be mining.” Finance, she points out, exists to squeeze every last drop of value out of any given asset.”

    – Know your place, peasant! And they all wonder why populism is growing globally… Not rocket science.

    – That being said, when Housing Bubble 2.0 pops, as part of The Everything Bubble, including stocks, corp. bonds, etc., it will impact everyone who owns the falling assets; which of course is now mostly the rich. They will become less rich, but the coming recession will impact everyone. It’s just that the rich won’t be impacted quite as much as everyone else.

  14. Article about monkey business in the real estate tax assessments of Detroit:

    the 63-year-old fell behind on her taxes because they were based on the city’s illegally inflated property tax assessments, which is a violation of state law.

    The Michigan Constitution states that no property can be assessed at more than 50 percent of its market value. However, research has shown that illegal property assessments were the norm in the city, not the exception. A 2017 report by law professor Bernadette Atuahene found that up to 85 percent of homes in the city were being taxed at inflated rates that violated state law, and that this has contributed to the mass foreclosures in the city.

    1. Speculation forces prices way into the future verses the slow gradual appreciation that comes with housing tracking to income.

      It’s also a waste how units set vacant while people with Housing needs are given limited options.

      I don’t think this is free market capitalism. It’s more like fake demand that creates fake pricing until it crashes.

    2. “Even more troubling, the same report found that on average, lower-valued homes were assessed at 18 times over the legal limit. Higher-valued homes, on the other hand, were assessed below the legal limit.”

      Move along folks…there’s nothing to see.

  15. No “pent-up demand” for $500,000 starter homes happening here:

    “undergraduate students in the United States are overestimating what they’re worth by a varying degree, depending on the major …

    the average Generation Z undergraduate expects to make $57,964 one year out of college, while the national median salary is $47,000 for recent grads with bachelor degrees who have between zero and five years of on-the-job experience”

    https://www.zerohedge.com/news/2019-06-20/us-college-grads-are-unpleasant-surprise

  16. “Immigration and Customs Enforcement will begin a large-scale operation targeting individuals for deportation across ten cities on Sunday, June 23, according to multiple news outlets. Denver is included on that list, the Miami Herald reports.

    ICE declined to confirm that an operation will soon take place in Denver, but elected officials around Colorado have started expressing concerns about the specter of such an operation.

    “We are an inclusive, compassionate and welcoming city and the the threats of this White House, which are only a distraction from its failures, will never weaken our resolve,” says Mayor Michael Hancock.

    https://www.westword.com/news/ice-will-target-denver-in-a-deportation-operation-11387834

    Resolve to what?

        1. “Error will travel over half the globe, while truth is pulling on her boots.” – Charles Haddon Spurgeon

    3. Sunday, June 23,

      Delayed two weeks. Time for our “compassionate” representatives to fix our immigration system or further expose themselves as feckless hypocrites.

  17. Regarding that NY Times article (just read it this morning)…why do graphics such as the one used to show percentage of purchases by investors always use colors with little difference between them to highlight the different percentages? Maddening to look at and try to draw comparisons…

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