As Americans took to their backyards and beaches to celebrate the unofficial start of summer this week, America's housing industry--for the first time in years--is celebrating right along with them. In the past two months, home sales reached a level not seen since before the financial crisis in 2008, and the price of new homes--taken as a sign of the real estate market's resurgence--reached their highest level in 20 years.
Many in the political and financial class are holding up this relatively positive new housing data as proof that the country has reached an economic oasis. And at first blush, the situation can be construed to be positive. The value of the U.S. housing market has climbed back to $16 trillion, exactly where it was before the economic crisis. Home prices and permits for new construction are up by double digits nationwide.
Race and the Economy
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But rather than an oasis, these new gains might be an economic mirage. The reality of the current real estate renaissance is that the rich and those on Wall Street are raking in the cash while large segments of the population--especially historically marginalized communities--remain stuck in a downward, alternate housing reality.
Generally, housing recoveries are fueled by millions of Americans with new jobs, higher wages, available credit from banks and overall confidence that things will get better. But the real economy that most people live in day-to-day is too weak for all of that. Jobs are in short supply, wages are at historic lows and credit for middle and working class Americans is tight. With their economic ladder into homeownership taken away, many Americans can no longer participate in the housing market.
In their absence, financial firms and rich global jetsetters are snapping up hundreds of millions of dollars of property each week.
Just in the last 12 months, Wall Street's Blackstone Group has raised $8 billlion to buy up homes on Main Street. Following suit, according to The New Republic, JP Morgan Chase--the nation's largest bank--has organized a fund to purchase 5,000 single-family homes in states with some of the most depressed real estate prices. As I wrote last year, a former Morgan Stanley housing strategist left that bank, organized a billion dollars, and is purchasing up to 10,000 homes with these new resources.
Paying above market price and with cash, these firms are setting the pace for the housing market and crowding out non-wealthy Americans who would normally buy. As the Washington Post reports, seven out of 10 home sales in states like Florida are made by these institutional investors. In down-and-out markets like Atlanta, four out of 10 home purchases are made by investors.
In markets like New York City, Washington, D.C., and San Francisco the construction of mega-projects for the mega-rich is skewing prices even higher and pushing more Americans to the housing margins.
Some apartments in New York's still-under-construction 432 Park Ave.--which is set to the be the Western Hemisphere's tallest residential building--sell for almost $100 million. The CEO of one of the city's largest real estate firms told The New York Times that "there is not enough supply" of $50 million apartments. In some of the most expensive buildings, 351-square-foot studios go for $1.6 million.
But as investors make money hand over fist, many others are frozen out. First time homeownership in the U.S. has fallen by 25 percent.
Driven by the foreclosure crisis, homeownership for blacks and Latinos has cratered, leading to the lowest level of wealth on record for these two communities. Housing is the single largest asset for African Americans and Latinos. As The Christian Science Monitor notes, the homeownership gap between whites and blacks is the largest in over fifty years. And as a recent Alliance for a Just Society report detailed, there are now more than 13 million homes underwater and headed toward foreclosure; they are clumped disproportionately in zip codes with majority people of color.
The irony of this foreclosure crisis, which was caused by Wall Street's irresponsible behavior, is that it created the massive supply in homes that those very same financial institutions are now profiting from at a record pace. Having profited first from millions of risky mortgages and eventually taken away the homes that underwrote them, institutional investors are now purchasing those same foreclosed houses at rock bottom prices.
That's why there's such a gold rush in housing right now. Wall Street is flipping homes into rental properties and then leasing them to the very people they pushed and priced out of the real estate market. Billionaire investor Warren Buffet sums it up this way, "If I had a way of buying a couple-hundred thousand single-family homes, I would load up on them. I could buy them at distressed prices and find renters."
Rather than a renaissance, the current state of America's real estate market is a catalog of wrongs. Instead of boasting about it, America's political class needs to find a fairer, new way forward.