5 Oct

Freddie Mac V. Hedge Funds


Freddie Mac predictions for the CA real estate market show that we should have a healthy market continuing into 2018.  New home sales are supposed to be the “primary driver” of sales in 2018 and we should see about a 2% increase in sales, across the board.  They are also saying that we should see an increase of 4%+ in value, as compared to 2017 which we saw a 6%+ increase in value, due to the historically low interest rates mostly.  “The economic environment remains favorable for housing and mortgage markets,” says Freddie Mac chief economist Sean Becketti.

Now, on to the real news!

Does anyone see that large hedge funds are buying up real estate in droves?  And, who is able to come up with the downpayment on a $500K plus house (median house price in CA)?!

As a Realtor, I see that the market is on fire within FHA limits right now (<$275,665 for Kern County), but what about the houses above that limit?  There seems to be a lot of foreign money floating around the market right now, which is helping hold prices up.

The question becomes, is this sustainable, and if it is sustainable for now, who is going to own the houses in the future?

The problem isn’t that we are seeing an average increase of house prices around 5%/yr (average), but it is more a question of who is buying those homes?  If hedge funds (Blackstone *cough cough*) keep buying up houses at the rates they have been, they will control the inventory.  He who controls the supply, has all the control.  If they decide to buy these houses assuming that markets will increase, they will be able to rent out those houses to those people who already cannot afford mortgages (isn’t that what we all are on BP trying to do?!) but they will also be able to increase rents which, if done correctly can severely hurt renters ability to purchase homes.  In effect, it will create the renter society which we have been hearing all about.

Now, I understand that Blackstone, and all the hedge funds out there can’t own ALL of the real estate, and therefore the supply will not be totally dependent on them, but if they start raising rents in your area, and you are a landlord who is keen to the market, then why wouldn’t you start increasing rents as well?

For all of us investors, this sounds like a blissful market, and should set us on the track to achieve the goal to own as many doors as possible so we can join the goliath hedge funds of the market, and make the world rent from us!

The biggest problem here becomes: Aren’t we a country that was built on home ownership?

What happens when that key tenet is taken away from our people (mostly the middle class and below)?

Does it matter?

Share your thoughts!

Until next time,
Sanjeev (Sunny) Advani
– Realtor/Property Manager/Investor

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