The Wall Street Journal reports that a bidding war erupted this winter in a new land development north of Houston, Texas, for an entire parcel rather than a single property, suggesting that large investors are joining the U.S. housing market as a new competitive force.
For example, D.R. Horton Inc., one of the nation’s top 3 real estate developers, built 124 homes in Conro, Texas, forming a residential area called Amber Pines at Fosters Ridge, the newspaper said. The company initially rented out the homes before listing them all for sale last December.
A number of high-profile investment firms and rental companies bid on the property, and the online real estate investment platform Fundrise LLC, which manages more than $1 billion in assets for 150,000 private investors, took it for $32 million.
Horton’s profit from the deal was twice as much as it would normally make from selling homes to middle-class consumers, making it a naturally attractive deal for the company. “It’s impossible to make a 50 percent gross profit selling to the average family,” said Bill Wheat, Horton’s treasurer, at a recent investor conference.
According to the report, big investment companies with billions of dollars of capital for the purpose of profit, and the average person who took advantage of low mortgage rates to enter the market to buy property, the advantage is obvious, and thus also raised prices. John Burns Real Estate Consulting (John Burns Real Estate Consulting) founder and CEO Burns (Burns (John Burns) said: “You use your strong capital to compete with a young couple buying a home. “
The firm estimates that for every five homes sold in many of the top U.S. markets, one of them was bought by an investor not looking to live there. “This will drive up the price of U.S. housing endlessly,” Burns said.
The firm found that Houston is a favorite among investors, who recently bought 24 percent of the listed homes there. Like cities with hot housing markets such as Miami, Phoenix and Las Vegas, investors are taking a growing share of the Houston housing market, especially in the market for properties priced under $300,000 and in decent school districts.
Burns & Company concludes, “Limited housing supply, low interest rates, worldwide gains, and the institutionalization of real estate investment have set the stage for the next investor-driven housing price bubble.”
The firm believes there is room for the bubble to inflate before it bursts, but the current rate of inflation is rapid. The firm expects U.S. home prices to rise another 12 percent this year on top of last year’s 11 percent rise, and will also rise at least 6 percent in 2022, reminiscent of the housing boom of 2004 and 2005.
However, the housing boom was driven by different factors than it is now: due to the extremely loose loan conditions at that time, many people with insufficient financial resources were burdened with heavy mortgage payments that were difficult to pay, in order to take advantage of the rising prices to make profits. The “party” ended when housing prices stopped rising a few years later. The subsequent collapse of the housing market evaporated $11 trillion of U.S. household wealth and pushed the global financial system to the brink of collapse.
The “CCP virus” (New Coronavirus) pandemic sparked a race for home office space and backyards. Occupancy rates hit record highs and rents rose along with home prices; a boom in services and financing followed. Burns counted more than 200 companies and investment firms hunting for homes.
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