EP220: Is Wall Street Buying Up All the Homes in America?
We need to set the record straight today.
It makes us crazy when exaggerated, scary headlines are thrown around, stirring up drama and leaving investors confused! 🙄
Haaave you heard the one about Wall Street buying up ALL the homes in America?
It’s simply not accurate, and we’d like to explain why.
Because when it comes to real estate investing, you deserve to know the FACTS about what’s happening in the market!
It might be easy to blame Wall Street for the housing crisis, butttt the data just doesn’t point that way.
There are actually more complex things affecting housing prices and demand.
Like zoning laws and interest rate hikes, for starters.
Real estate investors need to understand the state of the housing market to keep making smart investment decisions for growing lasting wealth. 🙌
So, you just can’t believe eeeevery single headline you see.
But you CAN trust that we’ll always dive into the data and lay it out as simply as we can.
Savvy investors look to the facts, not just the media. 👏
Wall Street isn’t at all blameless…but it’s also not the sole cause of the housing crisis.
Here’s to always getting to the bottom of sensationalized headlines. 🥂
IN JUST 3 MINUTES OR LESS TODAY, YOU’LL LEARN ⏬ :
- Come join us as we explore Wall Street’s apparent domination of single-family homes, seemingly squeezing out regular buyers.
- But together we’ll discover that the housing crisis is far more complex. It’s not just about Wall Street.
- Factors like interest rate hikes and zoning laws favoring single-family homes play major roles.
- This deeper understanding guides us towards long-term investments and seeing the bigger housing market picture, steering clear of sensational headlines.
Is Wall Street Buying Up All the Homes in America?
Did you guys know that Wall Street has single-handedly bought up a huge portion of single-family housing 🏠, leaving the rest of us SOL (Simply Out of Luck)?
Yeah, that’s right, in fact, by 2030, mega-corporations like BlackRock could own 60% of single-family homes.
Not only that, but by offering 20-30% more than the asking price, these mega corporations are edging normal people like you and us out, creating a nation of renters.
👉 So what’s behind this Wall Street takeover and causing this housing affordability crisis?
Hold up – because things might not be what they appear. You see, believe it or not, your mom’s Facebook feed or the latest tweet from X is probably not the most reliable source of news.
Scary 👻 headlines like those foreshadowing the impending doom of homeowners remind us of the Y2K “crisis” and the end of the world as we know it.
But not to worry, because we have your back and in today’s episode, we’ll dig into those eye-catching headlines and uncover the real story.
Plus, we’ll dish out tips on how you can use this info to your advantage, especially for yourself and your investments.
Think about it this way—homes aren’t your typical investment.
Sure, there are around 100 million homes in the US, but most of them are occupied by homeowners who aren’t looking to move anytime soon.
So, when we discuss companies purchasing homes, we’re not really talking about this massive pool.
The key stats to focus on are the homes that are actually up for sale, not the entire amount of homes out there.
Do you guys remember when Taylor Swift 🎹 bought her multi-million dollar homes? She’s not flipping those properties; she’s living in them, enjoying the space, and likely not planning to sell anytime soon.
Similarly, when we talk about companies buying homes, we’re not talking about Taylor’s situation or the millions of other homes occupied by people who aren’t looking to move.
There’s just buzz around famous houses hitting the market—those are the ones causing a stir and shaping the real estate discussions.
So who’s pointing fingers, and why?
Well, for starters, it’s always easier to point a finger to cast blame, isn’t it? We will be the first to admit we aren’t the biggest fans of Wall Street, but that doesn’t mean we can blame them for weight gain or the discontinuation of the Volkswagen Beetle.
Honestly, like it or not, the real culprit here is social media.
Lately, social media has been buzzing with unverified statements blaming Wall Street for the surge in housing prices.
➡️ Catchy headlines light up your feed with striking claims like “44% of houses are getting bought up by Wall Street,” sparking a wildfire-like spread across social platforms since early December 2023.
Adding fuel to the fire, our friend at Congress joined the circus, with Democratic lawmakers energetically proposing bills to curb or completely prohibit hedge funds from entering the market of buying single-family homes.
It’s all very dramatic and edgy, but we wanted to know – is it true?
Do Wall Street big shots like BlackRock and BlackStone (commonly confused) truly own a huge chunk of single-family homes?
Let’s look at the numbers – Statista says there are about 144 million homes in the US.
As of June 2022, the Urban Institute estimated that large hedge funds and other big investors owned around 574,000 single-family homes.
People love to blame BlackRock, but if you do your homework, you will find that BlackRock manages 10 trillion of client money, most of which is publicly traded stocks and index funds, not real estate. BlackStone specializes in alternative assets, but even they only purchased around 25,000 homes, which means they aren’t even a top 5 player in the space.
You can do the math, but for large hedge funds, the percentage owned is less than 0.04%.
And while certain pockets of the country might be witnessing more institutional investor activity in buying up homes, when you consider the entire US housing inventory, it’s not a significant portion overall.
We want to play devil’s advocate here for a second and point out that just because it is a small market share doesn’t mean it’s not contributing to rising home prices – just not to the scale that it’s made out to be.
Because a picture is worth a thousand words, to dive in ever further, we want to share a chart by our friends at Freddie Mac. 🤓🤓
Even if we toss in the iBuyers, they still only represent a tiny slice of the entire homebuyer scene in the USA. We’re talking seriously small here.
Those institutional homebuyers, the ones grabbing over 100 homes a year?
They didn’t even hit the 2.5% mark when we look at data going way back to the start of the century. They’re like a blip on the radar, hardly making a dent in the big picture!
Take a look also at this chart from John Burns Real Estate which really drives the point home.
Large Corporate Buyer Share of Purchase Market
Source: Freddie Mac Economics & Housing Research
You’ll notice that the percentage of home purchases made by major investors—those with 1,000 properties or more—is actually quite small.
For the longest time, the main players in home buying have been Tier 1 investors, the ones with 1-9 properties. In fact, the average is just 3-9 homes.
So here’s the deal: that viral tale about Wall Street snagging 44% of single-family homes 2023?
The crew with over a thousand properties?
They barely scratched the surface, making up just 0.4% of the market share in the second quarter. It’s like saying a drop in the ocean is taking over the whole sea! 🌊
Remember back in grade school when teachers warned us about pointing fingers?
They’d say that when you point one finger at someone, four points back at you.
The lesson they were trying to teach us is that the loudest blamers often deserve some blame themselves, even if they aren’t fully responsible.
When it comes to the housing affordability crisis in the US, the real finger should be pointed at the US government. They’ve played a significant role in this mess.
In the past 19 months, home prices skyrocketed due to the Federal Reserve’s continuous increase in interest rates—11 hikes in total. 😔😔
This led to home mortgage rates more than doubling in record time, making it incredibly tough for first-time buyers to afford a home.
It didn’t just affect new homeowners, though. Even retirees wanting to downsize found themselves unable to afford smaller homes. This disruption has shattered the usual pattern of buying and selling homes that we’ve historically seen.
But it’s not just mortgage rates that are suffering – zoning laws are partially to blame too.
It’s been over a century since the government introduced single-family zoning laws.
Would you believe that around 75% of the land zoned for housing in American cities is strictly reserved for, you guessed it, single-family homes? No space for anything else, no multifamily dwellings—just single-family residences.
And check this out: in certain suburban areas, they’ve gone a step further by flat-out making it illegal to build apartments in most residential zones.
Not only that, but they’ve also played the “let’s make those lots bigger and add some height requirements” game.
And the outcome?
It’s led to the construction of larger and larger single-family homes while seriously restricting options for smaller, more affordable housing.
On a more upbeat note, have you heard about the Roman Empire trend on TikTok where women ask men how often they think about the Roman Empire? Well along the same lines, we were thinking about the saying, “When in Rome, do as the Romans do.”
As investors, it’s becoming pretty obvious that investing in new or almost-new multifamily properties is a smart move.
The truth is, the housing affordability issue is only going to get worse.
And if you check out this chart, you’ll see something striking: the difference between home mortgage costs and rental expenses has never been this huge.
This is why we keep talking about having a rock-solid investment plan.
We’re all about putting our money into stuff that holds its value.
You won’t catch us jumping into fleeting crazes like Bored Ape NFTs; we’re after the basics, things as crucial as air and food, and that includes shelter.
With all that said, we want to point out that Wall Street isn’t always at fault, especially when it comes to US real estate.