If there is any market that demonstrates the complete and total misallocation of capital that results from Banana Ben Bernanke’s money printing and artificially low interest rate policy, it the latest phony American housing bubble. With a record numbers of citizens on the food stamp electronic breadline, with unemployment stubbornly high no matter what data you use, billionaire financial oligarchs are running around bidding up “homes for rent” and pricing out the random average person that actually has the capacity or desire to bid. I just read an excellent article that demonstrates the degree of insanity that has now been unleashed upon the streets of Las Vegas.
As the title of the post mentions, a study from the University of Nevada at Las Vegas show some 40,000 homes are vacant, or 8% of the metropolitan area’s single-family housing stock. So it would seem that this would provide plenty of good deals for investors right? Certainly there doesn’t seem to be a need for new home construction. Well think again! In their QE-forever induced delirium, homebuilders have gone Chinese and in Las Vegas “permits for new home construction are up 50 percent, twice the national average.”
My favorite line in the entire article comes at the end when a prospective buyer explains what happens when an actual citizen attempts to purchase a home to actually live in:
“We know there is a minute chance we get anything,” she says. “The most frustrating part of all this is how home prices keep going up and up, yet you have so many empty homes.”
Oh and it seems Oaktree has followed Och Ziff’s lead and pulled back from the “buy to rent” insanity. Soon all that will be left are the dumb money and homebuilders, who should start thinking about what kind of bailout they will lobby for when this entire thing unravels. From Reuters:
These big investors and a handful of others have bought at least 55,000 single-family homes across the U.S. in the past year. In the Vegas area alone, they have accounted for at least 10 percent of the homes sold since January 2012, according to a Reuters analysis of housing transactions.
That added firepower helps explain why home prices in this metropolitan area of 2 million people are up 30 percent over a year ago, far more than the national average of 10 percent. Permits for new home construction are up 50 percent, twice the national average.
Las Vegas would seem a highly unlikely locale for a new housing bubble. There are at least 20,000 homes in some stage of foreclosure, and the jobless rate hovers near 10 percent, some two points above the U.S. average. A healthy housing market depends on people having good-paying jobs so they can accumulate down payments and finance their mortgages.
Healthy markets? That’s so last century!
Cracks are showing in Vegas and beyond. Here, rents on single-family homes were down an average of 1.9 percent in March from a year ago. In other regions targeted by institutional buyers, such as Phoenix, Southern California, Atlanta and Florida, rents are either falling or flat, according to online real estate service Trulia.
Industry insiders estimate that roughly half of the more than 55,000 homes acquired by institutions over the past year in the U.S. have yet to be rented.
In Oceania, that is a market signal for build more homes.
The combination of rising acquisition costs, prolonged rental lead times and declining rental income is disrupting the spread-sheet analysis behind Wall Street’s bet. That could pose problems for what once seemed like a slam dunk. It could also give pause to stock-market investors as some players list their shares. American Homes 4 Rent, based in Malibu, Calif., has said it expects to file soon for an initial public offering.
Taking bets as to how soon after its IPO America Homes 4 Rent will go BK.
Early last year, Oaktree Capital Management agreed to provide up to $450 million in equity to real estate investment firm Carrington Capital Management for its foreclosed-home acquisition program. Carrington was projecting an internal rate of return of 25 percent over a three-year period for its portfolio of single-family homes in several cities, according to a marketing document.
Oaktree is now reluctant to commit more money to the trade after souring on the buy-to-rent strategy, said people familiar with the firms. Oaktree saw returns on rents compress and no longer is comfortable with Carrington’s initial heady yield projections, they said.
The Vegas market has unsteady legs. Statistics compiled by the University of Nevada at Las Vegas show some 40,000 homes are largely vacant – 8 percent of the metropolitan area’s single-family housing stock. Housing research firm RealtyTrac estimates there are 20,000 single-family homes in the metro area either owned by a bank or in some stage of foreclosure.
“We know there is a minute chance we get anything,” she says. “The most frustrating part of all this is how home prices keep going up and up, yet you have so many empty homes.”
Thanks Ben.
Full article here.
In Liberty,
Mike
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Perhaps this housing boom is designed to create more toxic collateralized mortgage products so Bernanke has something to buy in exchange for freshly printed fiat dollars levered 10:1?
I think this is just another “plan” here. If a few corps build and buy, they can force us into rentals at whatever price and contract they want. Don’t forget these corporations can manipulate the law in their favor anytime they want. I see in 10 years that we will all rent, we will all be responsible for repairs and what not. The fact is, we were all renting before.
I thought we were and always have been at war with Eastasia. Did I miss something?
Why Las Vegas? Do rich Chinese and Latins like to gamble?
If you were an Argentine would you rather put your money in a vacant house in Vegas or store your paper pesos in a bank at home where they are guaranteed to go up in smoke?
Or if you had made millions building vacant new cities in China using state money, and your brother had just been denounced for corruption for making the loans to you, and the penalty for falling out of favor with the Long March Oligarchs was death, wouldn’t Las Vegas real estate look like a good investment?
Or if you were an American hedge fund with access to endless zero percent loans facilitated by the FED, why not invest in Circus Circus?
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