According to my crystal ball, 2020 was supposed to be the year the housing market started to nose dive. Needless to say, my crystal ball is in for some much needed repair. Then again, who could have foreseen the bizarre COVID-19 pandemic which radically changed our way of life?
As panic gripped the world, the stock market dropped by 30%. The value of people’s 401Ks and other investments were plummeting. Yet, as people were being laid off in record numbers, house prices continued to climb, and they still do, at a 13% year-over-year increase.
This phenomenon baffled economists the world over.
As it turned out, during the pandemic, people fled the cities finding rural locations to hunker down, as if they would not come in contact with people in a rural setting, (snicker, snicker). Instead of just renting in these locations, many people begin to purchase homes in these settings.
Note: I met one gentleman who came to the area to get away from city lockdowns. Though he was from a state far away, he decided to buy a home in a rural setting. He never planned to, it just happened. Mind you, this was back in June/July of 2020.
Then as many high-paid positioned transitioned into remote work, it made it possible for more people to purchase homes outside of the city. Data shows, more homes sold during the pandemic in rural settings than in the cities. This has dramatically transformed the housing landscape.
Rural Towns Being Bought Up By The Wealthy
I found three articles that were extremely interesting.
This article explains, after a gentleman’s four-year travels on the road, he found himself unable to afford a home in rural Montana. His price range was $80,000 – $150,000, which would net a house in need of repair. However, they were suddenly in short supply. The few he tried to buy were purchased before he could even schedule a viewing, sight unseen.
In my conversations with people, I have heard similar stories. Properties being gobbled up sight unseen by the new owners.
This article explains, home prices in Kalispell/Whitefish doubled in just one year. These communities are small, with Kalispell’s population in the 20,000 range. Prefabricated track houses were erected that quickly sold for $550,000! Most cash deals, sight unseen. The locals call them “COVID Homes”.
Whitefish has a population of 7,700 people. Before the pandemic, the average home was $369,000. Today it’s $704,000 while the average wage is just $30,642. Just our dumb luck, this general region is one of the few places we would like to call home.
This article explains, housing has become so unaffordable for locals in Ketchum, city officials are building tent cities and RV parks for people to live. Locals have now been priced out of the town they grew up in. Rents have gone up due to Airbnb and VRBO.
We should note, these locals are not all broke. Some of them are nurses, medical supply people, and teachers whose salaries just cannot cut it. I did find a bright spot in this one. A 79-year-old physician owns two mobile home parks just outside of town. He rents out his spaces for $550 a month which is a steal!
“People look at the parks I have and they say, ‘My God, you could double your rents.’ People are working, they live there,” Hoffman told us. “Why would I do that if I don’t need the money? And I don’t, so there you go.”
If more people were like Mr. Hoffman, this world would be a much better place. Apparently, he already made his millions. Instead of accumulating more wealth that he does not need, he is giving back a little by limiting his profit margin. That is an honorable thing to do.
If You Sell A House These Days, The Buyer Might Be A Pension Fund
Yet, not everyone is as kind hearted as Mr. Hoffman. Certainly not mega corps whose ultimate goal is squeezing every ounce of profit out of their investments.
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I speak of the roughly 200 investment firms that are now buying up single-family homes and renting them as a part of their investment strategy.
According to the Wall Street Journal, this now accounts for 20% of home sales in large urban settings. Firms like Blackrock are a part of the buying frenzy, a firm that has ties to the Federal Reserve.
We can thank greed and our government for record low-interest rates, bailouts, money printing, and free pandemic cash for this latest problem.
The Federalist had a nice way of putting some of this in context for us,
This is a direct consequence of the Fed printing so much money and long encouraging debt by keeping interest rates so low for so long that investors are looking for better assets. Our government has long privileged debt over savings in large part because that makes it easier for the government to deficit spend, making debt less costly to Congress. So normal people essentially get punished for saving because Congress won’t stop spending.
Since the government quietly taxes away your savings through inflation, people and institutions who want to put money away for future use, or just grow their assets, are forced into riskier and more distortive behavior. Thus mega-dollar money asset managers and private equity firms are snapping up millions of homes at inflated prices because government profligacy has made it harder for them to secure a yield.
“Limited housing supply, low rates, a global reach for yield, and what we’re calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble,” the Journal quotes from a market analysis. The paper later notes the similarities to the 2008 housing market crash caused by government-forced subprime lending that “wiped out $11 trillion in U.S. household wealth and brought the global financial system to the brink of collapse.”
The Bottom 90% Of Americans Are Borrowing From The Top 1%
It’s the same story over at Bloomberg where this headline comes from. Only they connect a few more dots for us that help us understand the problem on another level.
Here’s their concept: The rich can’t possibly spend everything they earn, so they save a lot. In theory those savings can be recycled into productive investment, but in practice a lot of the money finances borrowing—i.e., dissaving—by people farther down the income ladder. “A substantial amount of borrowing by households in the bottom 90% of the wealth distribution was financed through the accumulation of financial assets by the top 1%,” the economists write, citing their own prior work.
The lending from rich to poor can be indirect. For example, let’s say a rich person buys shares issued by a company. The company stashes the proceeds in a bank. The bank in turn makes a loan to a non-rich person to buy a car or a house. The borrowers have a higher propensity to spend than the lenders, but they have less money to spend because part of their income goes to debt service.
Unfortunately, the article turns into a promotion of a massive wealth tax. Those things do not fix the underlying problems, which is unprecedented government intervention. The last administration spent more money than any previous Presidency, and no doubt, the new administration will do the same.
It’s the same tired song. So in reality, it’s the government that always creates the scenario which benefits the ultra-rich while impoverishing the poor and middle class. This has been going on for decades, and seems to be reaching a point where it has now consumed us all.
Ironically enough, the two richest people on the planet, Jeff Bezos and Elon Musk paid little to no taxes last year. The fix is in, and you are not apart of it.
Boiling It All Down
When we consider all of these things, we continually see the dollar losing its buying power at record levels. This certainly affects the bottom 90% more than it affects the 1%. So we have seen a massive trend that just continues.
We now see your average American being priced out of the American Dream, the concept of working hard and one day purchasing a home. For many, that will no longer be possible.
That reminds me of the overall goal of U.N. Agenda 2030, the sustainability agenda which put out the famous article, Welcome To 2030. I Own Nothing, Have No Privacy, And Life Has Never Been Better.
I beg to differ.