2. Higher interest rates will tamp down consumer purchases, notably of homes…
Goofyhoofy,
Perhaps higher interest rates will also reduce the yield spread between the single-family residential carrying costs and rental income for owners like Blackstone, REITs, and hedge funds, which have been major beneficiaries of zero interest rate policies (ZIRP) for the last 14 years.
Starting in 2009 the nation’s starter-home lenders negotiated massive block sales of single family HUD, Fannie Mae and Freddie Mac foreclosed homes to Blackstone, REITs and hedge funds. Thanks to ZIRP, deep-pocketed corporations offered an “easy way out” for the laziness and personal greed of management at the nation’s single-family lenders, banks, and loan servicers. These residential mortgage “finance professionals” were unwilling to invest the time and effort necessary to negotiate with individual and families seeking to buy REO (real estate owned) foreclosed properties in the wake of the subprime crisis.
A $60 Billion Housing Grab by Wall Street
Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.
By 2016, 95 percent of the distressed mortgages on Fannie Mae and Freddie Mac’s books were auctioned off to Wall Street investors without any meaningful stipulations, and private-equity firms had acquired more than 200,000 homes in desirable cities and middle-class suburban neighborhoods, creating a tantalizing new asset class: the single-family-rental home. The companies would make money on rising home values while tenants covered the mortgages… [Emphasis added.]
https://www.nytimes.com/2020/03/04/magazine/wall-street-land…
Once risk-free interest rates are high enough, it will benefit these corporate arbitrageurs to unload some starter home portfolios that have been rental cash cows but for which property taxes and maintenance costs are rising fast with inflation.
If they unload properties at the present peak market for single-family homes, Blackstone and others will reap billions of dollars in capital gains thanks to Fannie’s, Freddie’s, and big banks’ generosity in selling to them at deep discounts a decade ago. So long as they do so before Congress increases the long-term capital gains tax rate, they may have succeeded at timing the market (selling high after buying low).
For well over a decade, the nation has been done a disservice by the very entities whose raison d’etre used to be for the purpose of making housing more affordable for the average American family.
Either the Fed, the Office of the Comptroller of the Currency, or Congress could easily have imposed regulations and conditions prohibiting block sales of homes by federally-insured and/or subsidized lenders after foreclosure.
Instead, for 14 years, they sat idly by and enriched their cronies - making most new families perpetual renters and denying an entire generation the opportunity to build equity in the fastest run-up of single home real estate values since the Civil War.
Perhaps higher rates will usher in a time when young families can again find starter housing stock accessible via a down payment and 30-year mortgage. It would be nice to see a new generation learn to individually negotiate a home purchase without competing with deep-pocketed corporations.
I’m not holding my breath, though.