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Good Luck Competing Against Wall Street When Buying Your Next Home

Photo via Roberto Júnior on Unsplash

The issues facing America's housing market have been well documented. Prices are high, supply is low and many Americans can't afford a home based on their income and savings.

The sales price of existing single-family homes is sitting just below the highest level ever. According to a recent report, the average American can't afford a home in 70% of the country. There's even a record number of American families earning six-figures that are renting. After seeing housing inventory recover from record lows a couple years ago, potential home buyers are once again shopping in a market that is constrained by supply.

According to realtor.com, the inventory of homes for sale in the U.S. is declining at an accelerating rate. Inventory fell 2.5% annually in September following a 1.8% decrease in August. Supply is drying up as mortgage rates, which increased most of last year, have since plummeted.

It's been a particularly tough market for prospective starter home buyers. The supply of homes listed below $200,000 fell 10% compared to the same period last year. Homebuilders aren't doing them any favors, either. They're building more homes in the $200,000 to $750,000 price range, which accounts for 60% of the market, and the luxury segment. Robert Dietz, chief economist for the National Association of Home Builders said "Right now only about 10% of newly-built home sales are priced under $200,000. Five years ago that share was 1 in 5, and 10 years ago it was 40% of new home sales were priced under $200,000."

One of the most troubling aspects of the housing conundrum may be homes on the low end have been, and continue to be, bought by investors. In 2012 the U.S. government enabled investors, such as private equity firms and other real estate speculators, to buy foreclosed homes in bulk from Fannie Mae to boost the housing market. In one Atlanta suburb, investors bought 90% of the 7,500 homes that sold over a year and a half period.

Last year, investors represented a record 11% of all home purchasers and bought one in five starter homes. The National Bureau of Economic Research estimates more than $220 billion has been transferred from American homeowners to corporations. However, it's not just existing homes that prospective buyers are competing against investors to purchase. With supply tightening, these investors are now resorting to building entry-level homes to rent out. A recent NYT story summed up the situation saying "Often, conventional buyers do not even have a chance."

Politicians are noticing, too. Democratic Presidential candidate Elizabeth Warren wants to limit investment firms' hold on the housing market by requiring 75% of single-family properties purchased through foreclosure to be sold to owner-occupant buyers. Given more than 40% of Americans now support some form of socialism, Americans may begin to demand action as investment firms continue to make it harder for individuals to buy homes.

Leftover Crumbs

  • From a $47 billion valuation to running out of cash in a few months. More details are emerging about the attempt to rescue The We Company, and they're not pretty. Softbank and J.P. Morgan Chase are reportedly teaming up to offer a debt and equity package to save the former unicorn startup. According to sources, at its current rate, The We Company will run out of cash by mid-November. The We Company reportedly prefers a $5 billion financing package led by J.P. Morgan as opposed to selling a controlling stake to SoftBank. J.P Morgan, which is the company's third-largest outside shareholder after Softbank and Benchmark, has given NDAs to about 100 potential investors in the deal. Ironically, The We Company S-1 appears to have omitted the fact that without the IPO the company would run out of cash by November.

  • Another "worst since the crisis" headline. The International Monetary Fund lowered its 2019 global growth estimate to 3%, the lowest rate since the financial crisis. IMF chief economist Gita Gopinath said "growth continues to be weakened by rising trade barriers and growing geopolitical tensions." The IMF also lowered its global growth estimate for 2020 to 3.4%. The IMF previously lowered its 2019 and 2020 global growth estimates in its July report. Gopinath also seems to be sounding the alarm on asset valuations, saying "it is essential that effective macroprudential regulation be deployed today to prevent mispricing of risk and excessive buildup of financial vulnerabilities."

  • Apparently one month was the line in the sand. Following 30 days of United Auto Workers members striking, GM and the UAW have reached an agreement in principle that could end the strike. The two sides have reached an agreement regarding one of the major issues regarding temporary workers. The deal will give temporary workers who have three years of consecutive employment the opportunity to become full-time employees, therefore providing them better retirement benefits, paid time off and health care plans. The two sides are still negotiating another major issue - bringing auto assembly lines back to the U.S. from Mexico. The strike is reportedly costing GM $90 million per day.

  • Hopefully they work better than paper straws. Danish beer company Carlsberg has debuted its prototype for the world’s first "paper bottle" for beer. The "Green Fibre Bottle," which is both 100% bio-based and fully recyclable, has been in development since 2015. They also announced The Coca-Cola Company, The Absolut Company and L’Oréal are joining them in the paper bottle community. The community, founded by Pabaco, "unites leading global companies and experts with the vision of advancing sustainable packaging, offering high-quality products with reduced environmental impact."

  • If it was after a night of partying, most customers probably wouldn't have noticed anyway. Taco Bell has recalled 2.3 million pounds of seasoned beef following concerns it contained metal shavings. The recall is affecting 21 states across the eastern Midwest, northern Southeast and Northeast regions of the U.S. The USDA announced "there have been no confirmed reports of adverse reactions due to consumption of these products." One Twitter user had a good idea, saying "That’s good to know. I’ll use a metal detector next time I eat at Taco Bell."