In 2008 real estate blew up as the sub prime mortgage market exploded and those loans were bundled pools of mortgages that had false financial ratings.
Today rweal estate is going into a financialization stage where corporations & wealthy individuals are buying up single family homes a low-risk investment that generates income and capital appreciation. This investment is pushing housing valuations higher and higher.
The definition of a bubble is when underlying assets bear no relation to the cost of the asset. Tulips selling for $50k. Home mortgages being given without regard to people’s ability to pay. No profit companies IPOing for billions of dollars.
Houses being bought by corporations is not that unless some sort of bidding war breaks out and sends prices to the moon. Prices are high, yes, but nowhere near “bubble” territory.
This may be an artifact of the Tax Cuts and Jobs Act - better known as the Trump Tax Cuts. That bill didn’t just change tax rates. It dramatically increased the standardized deduction. That significantly reduced the incentives to itemize tax deductions, and indeed the number of filers who itemized their deductions cratered after the act was adopted.
That decimates the tax advantage for owner-occupied residences, especially at the lower end of the market. It’s no surprise that the nature of ownership shifted - with very few homeowners benefiting from deducting interest payments from their taxes, there’s just less incentive for houses to be owned that way.
The SALT deduction cap might play a role in that as well, though likely smaller, at the higher end of the market. Wealthy owners are likely to itemize, of course - but a cap on the deductions you can take for the house reduces the incentives to own it in your own name, as opposed to a corporate entity (which has some advantages).
Typically, they raise money from investors and then use that money as equity to buy the investments. Sometimes they will apply leverage against that equity in an attempt to increase their overall return. Sometimes the leverage is placed at the time of purchase and sometimes the leverage is placed after the purchase, and sometimes no leverage is used. Each deal is different.
It is not today… One of my good trades was buying $INVH on March 2020. Actually keeping interest rates so low for a very long time enabled the prices to go high. Now most of those homeowners are locked in their houses and not moving, not selling. Check out the existing home inventory vs new home construction.
New Home construction is gaining pace, but existing home inventory is so low, because homeowners are locked in with low mortgage and current mortgage rate is high. For many the difference is 3% ~ 4%.
There are many sensible solutions to housing problem. The biggest change is zoning rules. The rules can be changed on select markets to increase availability and affordability. Who resists that? Existing homeowners. Not corporations.
They make all-cash offer because that beats retail mortgage financed offers. But remember the PE firms may or may not have borrowed. But that doesn’t show up in the offer.
There has been a massive retirement of skilled construction workers in the past few years, and with a resistance to immigration the replacements are not coming in to the US. I don’t expect supply to get better anytime soon. Getting someone to even give you a quote on a home repair/renovation job is problematic at best. Few seem to be entering that career.
No The construction has not kept pace is due to shortage of lands, that is the land which is closer to work. If you see new home constructions map of any homebuilder you see the communities are often 100 miles outside of the cities. That’s the issue. Not the workers. Secondly, regulations.
Not true. My wife does workforce development for a big company you’ve heard of that builds lots of stuff. They don’t have even remotely enough workers in the skilled trades for what they want to do right now, and future projections just get worse. It is a big problem.
Lots of housing got build prior to 2007, but lots of lenders and construction companies got a bloody nose when the music stopped and the industry never really recovered. We’ll probably have to wait until the old cogers retire and everyone forgets what happened before the industry will fully recover.
My views are shaped by what I have seen in the companies that I worked, which is tech industry. The companies are not interested in skill development. Rather they purge the skills that are no longer required and go to market and get the skills they need.
You can see employee tenure from from page 9 onwards. Employee tenure is going down over decades. Companies often label, training on ethics, harassment as “training” not real skill training.
Few years back IBM famously told its employees, you need to equip yourself, at your time and dime, with employable skills. It is not our job to train you. I am not singling out IBM. This is the reality I see.
So instead of organizations complaining they don’t have skilled employees, they need to think about training employees.
My wife works in the tech industry. To clarify, they aren’t looking to hire people in the skilled trades directly. The construction companies who build their infrastructure need skilled workers and there aren’t enough of them. If this sounds like the construction companies’ problem, it is. But if the construction companies can’t build stuff, then it becomes everyone’s problem.
I can say with 100% certainty that all of the big tech companies are also trying to develop a skilled trade work force in basically the same way for the same reasons.
Huh. Interesting. Tomorrow morning my wife is going to an out-of-town conference to meet with her colleagues from other tech companies to discuss skilled workforce development issues. I’ll tell her that none of those people actually exist because some guy on the Internet said so. And he said it three times, so he must be right.
