Why the Housing Recovery is Nearly Homeowner-Less
The financial crisis of 2008 was terrible for homeowners saddled with heavy mortgage payments, especially the millions of low-income, first-time buyers who were tempted to buy in with deceptive loans during the height of the housing bubble. About 4 million foreclosures have been completed since the financial crisis of 2008, according to CoreLogic, a data provider to the real estate industry. Since 2006, when subprime loans first began to default in large numbers, there have been 9.4 million foreclosures initiated, according to the Federal Reserve Bank of New York (US Fed). To a select group of hedge fund and investment bankers the financial crisis that pivoted on these foreclosures was the opportunity of a lifetime. They made billions from the crash by wagering against the stability of the US housing market.
Now some of the same elite investors are tacking backward and betting on a recovery of the housing market. It’s a strange recovery though, propelled not so much by families seeking their own piece of the American dream, but instead by the US Fed’s monetary policies. Low-interest rates fostered by the Fed are causing big-money investors to purchase foreclosed single-family homes in blocks of hundreds, even thousands. Expected gains in home prices are also leading hedge funds and investment bank traders to gamble on housing derivatives.
Like the so-called jobless recovery, characterized by rising business earnings in the midst of high unemployment, the nascent housing recovery is not propelled by a rise in homeownership rates, employment and incomes. Instead, foreclosure rates remain high, as does do unemployment figures, and there’s a big backlog of bank-owned properties that has yet to hit the market. Meanwhile, many former home owners have been relegated to the status of renters. If home prices are truly embarked on a sustained rise, the big gains in any new equity created will likely accrue to a smaller number of owners, many of them corporate investor-landlords, and to a few elite financial speculators positioned to make complex derivatives bets on housing bonds. That’s how it’s playing out so far.
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