When It’s Easy to Be a Landlord, No One Wants to Sell
On the surface, lower home prices would seem to have created the first buyers’ market since the recovery from the housing bust and Great Recession began in earnest a decade ago. Yet for many would-be homeowners the combination of two years of price run-ups and significantly higher mortgage rates has left homes just as expensive as they ever were — assuming they can find a home that lies somewhere at the intersection of what they want and what they can afford, which many still can’t.
This problem revolves around the fact that anyone who already owns a piece of real estate has very little reason to sell it right now. Homeowners can charge high rent, their locked-in borrowing costs are low and equivalent properties are hard to find. Even people who need to move — whether to find more space or to relocate for a job — don’t necessarily have to sell: The strong rental market means they can hold out if they don’t get the price they want, and it’s hard to imagine that changing until there’s enough housing to satisfy demand.
https://www.nytimes.com/2023/02/11/business/economy/real-estate-market-landlords.html
alt link:
https://dnyuz.com/2023/02/11/when-its-easy-to-be-a-landlord-no-one-wants-to-sell/
Seems like a fluff piece. Being a landlord isn't "easy" and it's by no means certain that these people have locked in low interest rate mortgages.
Moreover, the line "Even people who need to move - whether to find more space or to relocate for a job - don't necessarily have to sell" breaks down when you think about it for 5 seconds. Yeah, I own my home and don't need to sell... but if I move, then I don't have the money to buy a place, now do I? And renting is ever so expensive, apparently. As always, some idiot op-ed writer trying to have their cake and eat it too when it comes to explaining about high housing prices. Either it's impossible to buy, and thus this hypothetical owner cannot buy a new place (in which case they're still not really absorbing too much housing supply, they still only own the one home) or it isn't, and the entire piece is worthless.
It gets mentioned at the end, sort of, but the only villains of the housing market are NIMBY owners and planners who restrict new supply from coming on the market, either rentals or ownership units. The only solution to the housing crisis is to build more, but no one wants to admit it, because it would mean laying the blame on the average American homeowner, and apparently we can't actually assign fault to middle class Americans at this point for anything.
What about the massive investment funds that have bought real estate of all types in bulk at prices well above asking, thus extremely restricting supply? They don’t have a bit of blame for the absurd housing crisis? It’s so stupid to say that the middle class is the only reason for this problem. NIMBY is a problem of course. But it’s naive to think that upper class looking at housing as only an investment rather than an essential right for all doesn’t contribute to this problem as well. This type of “housing as solely an investment” is exactly what led to the GFC and what is leading to the current housing bubble.
How does that restrict supply? Those homes don't disappear. Goddamn dude, think before you post! Unless you have some evidence that "massive investment funds" are out there demolishing 2 homes to build 1 massive one, this argument is stupid on its face.
No, not really. Build more homes, expand supply, decrease price.
You're also basing your entire argument on the premise that homeownership is a fundamental right; you've done absolutely no work to prove that.
I didn't say that, and if you interpreted it that way, well... I don't believe the middle class is the "only" reason for the problem. But they're the only people who don't get blamed. Foreign buyers, "massive investment funds", etc... they get blamed all they want despite operating at the margins of the housing market. Single family homeowners own most of the real estate in this country, and it is exceptionally rare you hear blame assigned there. You know, same as no one wanted to blame people who took out mortgages they couldn't afford as a causal factor in the GFC.
A little? Maybe? The "upper class", however you define that, isn't removing supply, and doesn't absorb enough housing units to make a huge difference. Housing is an essential right, but it's not just rich people who prevent housing from being built, as any affordable housing developer can tell you. No one wants more housing; the only difference is that the people complaining about how they can't afford a home are the less well off. Can't have your cake and eat it too
Uh, no, it isn't. You're pretty obviously not old enough to remember the GFC, so go learn a bit about it. There were many causes of the financial crisis, and the housing bubble (which is what you're referring to, presumably) was the symptom, not the cause. But "treating housing as an investment" was certainly not one of the causes, and certainly not a proximate one.
Even when housing is treated as an investment, it is still housing. It is still being rented out, and since no landlord is nearly large enough to exert a monopoly power on the market, that means that it's not "landlords" driving up rents. It is housing scarcity. Build more, pay less. It's a super fucking easy equation. You know what happens when landlords can't get the rent they want? They rent it for less, or sell for less, because sitting on an empty apartment month after month, year after year is way more expensive than renting for a 5% loss. The only time that isn't true is in places like NYC that have rent control, where there is no pricing power at all so the costs of renting out a unit exceed the costs of carrying a vacant apartment.
You really need to educate yourself beyond the confines of Reddit or Twitter or wherever you're getting these godawful takes from.
No, the price of supply being run up by investors has nothing to do with the supply basically staying the same. The problem isn't who is buying or at what price they are buying. The problem is that you have new housing demand of X and a new supply of X - Y. Demand of X is everyone who is looking to move into the housing ownership side of the market and a shortfall of Y that is basically 80% of X.
https://www.theatlantic.com/ideas/archive/2023/01/housing-crisis-hedge-…
Private equity purchasing single family homes has been a very small part of the SFH market, they just don't have the market position to affect prices the way you are claiming. There are about 83 million detached SFH in the US, it would be extraordinarily difficult for anyone to corner any aspect of that market.
An interesting tidbit from the linked article:
NYT pabulum aside, the article brings up an interesting point: what is the unintended consequence of multiple years of rock bottom interest rates, followed by massive, repeated hikes?
When a majority(?) of homeowners have interest rates locked sub-3% for 30 years, there's a massive incentive to hold, not sell, and for-sale inventory will be driven even lower than it's been.
Neighborhoods that never had renters will now get them, and there will be less of a 'stigma' to renting, as high earners will rent. I could buy a home and pay a $8K mortgage at today's rates, or the current owner could keep his $5K mortgage, and I pay $6K in rent, and we both win (assuming that this mortgage arbitrage more than pays for the additional management headache.) Yes, I understand that seller may want his liquidity out of the property for something else, but keeping the low rate will definitely compel many to hold.
Prediction: for-sale inventory stays extremely low (for reasons described in article), and people who still have a fixation with the American Dream(TM) will pay the still-very-high market clearing price to purchase and take on these extremely high mortgage rates, along with the big downpayments (a fool and their money ....). The transaction volume will continue to crater (look at recent redfin charts), and this will be a structural (not cyclical) downturn for the mortgage / brokerage industries. Frankly, I don't see things going 'back to normal' in the next several years as interest rates will settle at a very high level and create a lot of losers in the real estate industry (where frankly, everyone looked like winning geniuses as long-term decline in interest rates drove property values higher - this new normal will be the opposite trend.) I also think the idea that everyone 'builds wealth' by owning their home will go away, as, again, rising interest rates will spoil that arithmetic.
Painful to consider, but my two cents.
Timing the market is a foolish game no matter what, so I'm not sure it matters.
At the end of the day, hand wringing of any sort about how expensive the housing market has become is going to be an exercise in futility, done only to gin up resentment against a particular class of people, unless the only thing you really talk about is increasing new builds. No, it isn't the fault of "corporate landlords" that housing is so expensive, and no, it isn't the fault of people who own second homes, or of Boomers for not dying. It's the fault of local communities for preventing new housing from being built to keep up with increasing demand. And unless we figure out a way to make it easier to build, you won't find a way out of the morass of unaffordable housing prices. In the absence of new supply, the best that can be done is to shift gain and less from one group to another; it'll be a zero sum game.
The problem is that easing supply constraints will naturally have a negative effect on home values, and now that your average homeowner saw that their Zestimate was up 50% in the last 3 years or whatever, they'll view that as their god given right and fight anything that might bring that valuation down. And they're the ones with the most sway when municipalities make decisions regarding density and use planning
NIMBYism definitely protects property values by restricting supply. But (in my experience doing suburban residential and dealing directly with these NIMBYs) they generally aren't directly seeking to protect their home values. They don't want the traffic on the local streets, they don't want trees cut down and replaced with buildings, they don't want someone's windows overlooking their rear deck, etc. And they just generally don't want the quiet, low-density nature of their town to change.
Timing the market doesn't matter? Like taking out a mortgage at 3% in January 2022 vs. taking out a mortgage at 7% in September 2022?
Not sure if you intended to respond to a different comment but I don't think your unified theory addresses the tectonic shift in monetary policy, whose lags are long and variable per Milton Friedman.
I refi’d my mortgage in fall 2020 to a 30 year fixed rate of 2.50%.
At this point, and probably forever, my mortgage will be a financial asset.
If I had to sell my house and buy a replacement at the same price but at current mortgage rates (if I moved for instance) - my mortgage payment would go up 50%. 50%!
I have no clue what this will ultimately do to home prices because it seems there are factors moving in either direction - but here is how it affects me
1) I am much less likely to upgrade to a bigger / better house unless the entire market adjusts down in price
2) If I actually did upgrade houses - it would probably be because I had enough cash to make it happen without selling my existing house. I am guessing that by renting my house (with the 2.5% mortgage) my yield as a landlord of my current house would be somewhere from 10% and 20% (depending on what happens to home prices). I am highly incentivized to become a landlord.
3) Until / unless 1) and/or 2) above happens - I am much much much less incentivized to move than I was before the massive change in interest rates happened
4) I am sure there are many others in my situation. Overall I think this will mean less transactions overall from existing housing.
5) Which means there will be less price discovery, and it will take a long time for prices to adjust down - if ever
6) Which means we will have a fucked up market for a WHILE
7) And that’s bad for everyone
8) More than anyone I blame the Fed for horrific policy actions during and after COVID
9) I think we can all agree that rates are high partly due to the length of time we have had easy money policy - making our current economy too hot.
ie, rates are higher now bc they have been too low for too long.
And the people who get screwed on that are aspiring homeowners in Gen Z.
At least in the meantime until prices adjust (if they do) to reflect the current mortgage environment.
For those that are talking about how relatively small the amount of transactions done by institutions in the single family sector is, you are right - for now. This is going to grow though. MetLife predicts institutions will own 7.6 M single family homes by 2030. Over 40% of all single family rentals.
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