The REAL Reason Housing Prices Have Skyrocketed

George Washington's picture

Preface: In Part 1, we showed that mortgage applications are down, and it is really institutional investors driving the housing boom. Part 2 explains why.

Housing prices have boomed because:

(1) Lenders are artificially keeping vacant houses off of the market




(2) The Obama administration has thrown all sorts of artificial incentives at institutional investors to pump up prices

Artificially Suppressed Housing Inventory

Naked Capitalism reported last August:

Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms – flush with cash thanks to Tim Geithner’s religious devotion to trickle-down economics and the resulting cascade of corporate welfare – have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long-term sustainable.




Lenders argue the drop in foreclosures is caused by delays in the court system. However, Judge Jennifer D. Bailey, lead foreclosure judge in Miami-Dade County – epicenter of the foreclosure crisis – solidly rebuts that argument. “Here in Miami-Dade County’s Eleventh Circuit, there has been no delay in foreclosure case hearings for nearly two years,” Judge Bailey said in an Aug. 19, 2012 interview with the Miami Herald. “If you want to see a judge to hear your trial or summary judgment, you get a prompt court date.” This coincides with my own observations in foreclosure court, where judges rail at bank lawyers for repeatedly delaying their cases, even when borrowers are in no way contesting their foreclosures.


Holding back inventory means that the houses that are put on offer sell faster and at higher prices. That creates an incentive to delay foreclosures or not foreclose at all even when a home is delinquent.

Indeed – in the real world -  12.6 million houses are vacant1.5 million more home than are underwater. In other words, without artificial scarcity created by banks, there would be more available houses than there are underwater homeowners having problems paying their mortgage.  There would – in a word – be a glut.

Government Is Secretly Helping Financial Companies to Snap Up Housing

There are realistic ways to help the economy. For example:

But instead, the government’s entire strategy is to try to paper over all of the real problems with the economy by artificially propping up asset prices  in an attempt to hide the fact (which has been obvious for years) that the big banks are insolvent.

Stocks, for example, are largely being driven by insiders and government policy.

Indeed, we’ve pointed out for years that all of the Obama administration’s “homeowner relief” programs are really just back-door bailouts to the big financial companies … and are not even intended to help homeowners.

Mike Whitney explained last September:

Private Equity firms are piling in to the housing market to take advantage of bargain basement prices on distressed inventory. The Obama administration is stealthily selling homes to big investors who are required to sign non-disclosure agreements to ensure that the public remains in the dark as to the magnitude of the giveaway. Aside from the steep discounts on the homes themselves, the government is also providing “synthetic financing to reduce the up-front capital required if they agree to form a joint venture with Fannie Mae and share proceeds from the rental or sale of properties.” (Businessweek)


In other words, US-taxpayers are providing extravagant financing for deep-pocket speculators who want to reduce their risk while maximizing their profits via additional leverage. The plan resembles Treasury Secretary Timothy Geithner’s Public-Private Partnership Investment Program …. Speculators are getting lavish incentives (gov financing, low rates, and severe discounts) in secret deals to buy distressed inventory which should be available to the public at market prices. If that’s not a ripoff, then what is?




Obama’s preferred customers are getting discounts of up-to 60 percent of the home’s peak value and generous gov-backed financing to boot!




As the article above indicates, there’s no shortage of delinquent homes that will eventually be foreclosed. That means the process is being dragged out so the banks don’t have to fess-up to the losses on their fetid pile of nonperforming loans Here’s a little more background from an article in Businessweek

“About 6 million U.S. borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California….


Single-family rentals are priced to deliver unlevered total returns in the range of 7.5 percent to 8 percent, or about 0.5 percentage point to 1 percentage point higher than institutional-quality apartments, according to a June 8 report by Ray Huang, senior associate at Green Street Advisors in Newport Beach, California.  (“Colony Said to Win Foreclosed Homes Sold by Fannie Mae”, Businessweek)[Link.]

If “6 million homeowners” will lose their homes in the next five years, then why are clownshoes media dupes touting a “bottom” in prices and a “market rebound”?


It’s all hype. And look at how calculatingly fiendish Obama’s foreclosure-to-rental program really is. The big boys have figured out the nearest penny how much they can make by throwing people out of their homes. (7.5 percent to 8 percent) Talk about heartless. And, of course, this whole process is being orchestrated by President Fairydust and his Wall Street Pranksters to keep prices artificially high and preserve the illusion that the banks are solvent.


It’s infuriating!

And if that isn’t hard-hitting enough for you, Jim Quinn writes:

The contrived elevation of home sales and home prices has been engineered by the very same culprits who crashed our financial system in the first place. This has been planned, coordinated and implemented by a conspiracy of the ruling oligarchy – the Federal Reserve, Wall Street, U.S. Treasury, NAR, and the corporate media conglomerates. Ben’s job was to screw senior citizens and drive interest rates low enough that everyone in the country could refinance, attract investors & flippers into the market, and propel home prices higher. Wall Street has been the linchpin to the whole sordid plan. They were tasked with drastically limiting the foreclosure pipeline, therefore creating a fake shortage of inventory. Next, JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action. The Wall Street big hanging d[!@#*] have screwed the American middle class coming and going. The NAR and media are tasked with what they do best – spew propaganda, misinform, lie, cheerlead and attempt to create a buying frenzy among the willfully ignorant masses. The chart below reveals the truth about the strong sustainable housing recovery. It doesn’t exist. Mortgage applications by real people who want to live in a home are no higher than they were in 2010 when home sales were 33% lower than today. Mortgage applications are lower than they were in 1997 when 4 million existing homes were sold versus the 5 million pace today. The housing recovery is just another Wall Street scam designed to bilk the American middle class of what remains of their net worth.

Of course, economist Michael Hudson would put it a little differently: banks are trying to roll back all modern laws and make us all into serfs.

In other words, the giant financial service companies are attempting to privatize public resources, socialize losses, scam people out of their homes and other private property … and then rent back to us what we used to own for a hefty price.

Do you understand the game now?

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Tombstone's picture

I would bet that a good chunk of those empty houses are nearly worthless because they are in areas no one wants to live in, have been partially wrecked, are in need of great amounts of renovation or have outlived their usefullness.  In the end, The FED will provide the funds to the banks to gloss over their losses.  Cronny capitalism will continue to thrive under the current Communist regime.

IdiocracyIsAlreadyHere's picture

Your point is valid but then you have to ruin it by actually using "crony capitalist" and "communist" in the same sentence.  What is it with ZH commenters and vocabulary and definition fail of late?  The correct term is fascism - the merger of state and corporate power (Mussolini understood completely).

Hohum's picture

And, don't forget, HAMP has been extended to end of 2015.  That move supports this article's contention 100%.

Handful of Dust's picture

Lots of vacant houses where I live.  You can tell they are empty and not cared for by the unmowed lawns, papers piling up on the doorstep and falling fences.   No "For Sale" signs and not listed....more and more every month.


Terrible for neighborhood house values. And as for "The Community" doesn't exist anymore.

My Days Are Getting Fewer's picture

Well written article.

This is an artifice to off-load houses, affordable by the former middle class, from banks to hedge funds.  Please remember that no one is required to rent these properties.  Unless the hedge funds are indemnified by the Government from losses (caused by vacancies, rising real estate taxes, administration costs and maintenance) they will regret their ownership of these things.  Banks packaged residential mortgages into securities and look what happened - if those holdings were marked to market, the banks are insolvent.  Packaging single family residences into REIT won't work either.  These properties are too labor-intensive and too costly to maintain.  I have owned several rental duplexes for more than 25 years and have a fair understanding of the subject.
tony bonn's picture

keeping houses off the market costs money....someone has to pay for it and it is the tax of the real reasons for tarp, zirp, and trillion dollar deficits as far as the eye can see is to finance the withholding of property from the market and forestalling of payers have been raped to pay for it....the fed, bush crime syndicate, and rockefeller nazis have specific programs to manipulate the prices in order to become the largest landlords in the world.

lolmao500's picture

People are going back to their parents houses... because... there's no jobs... and even those with jobs, nothing is affordable.

DaveyJones's picture

a lot of the world lives under multi generational roofs. seems to come home with the global powers moves to find the cheapest labor, exploit whatever local resources, rape and pillage, then move on.

Widowmaker's picture

Short and sweet, Washington.


Your nation is only of fascists and faggots.  Nothing but Lies Inc.

Law is dead, so too the US of A.  Ownership of anything?  Please.


g'kar's picture

A little while back I would have said you were wrong. I'm not so sure anymore.

RealFinney's picture

Waking up to find themselves homeless, on the continent their fathers conquered.

g'kar's picture

All part of the plan...serfdom.

pragmatic hobo's picture

it's a botox economy ...

Cynthia's picture

You've got the botox economy right, hobo, but it started out as a subprime economy immersed in a bucket full of horsemeat.


Mortgages are dog fuckery as practiced by the POTB on the sheeple for laughs and pocket change.

Jumbotron's picture

"Mortgages are dog fuckery as practiced by the POTB on the sheeple for laughs and pocket change."

Mortgage quite literally means "Death Pledge"

The word mortgage is a French Law term meaning "death contract",...from Wiki

Non Passaran's picture

I just KNEW the French were behind it!

AccreditedEYE's picture

While these points are all correct, the one piece you are missing is the need to prop up the garbage securities tied to housing in the United States that have still been on foreign bank balance sheets. Once this toxic sludge is sold off (we're almost there) this little game of renting to retail will be over.

swmnguy's picture

Seems to me that our entire current system is doomed by its own internal contradictions, and the Elites know it and are acting accordingly.  Our system relies on unlimited markets, resources and money, not to mention unlimited and free energy.  Of these, only money can be made infinite, and that only by making it completely abstract.  As we hit the limits on all the actual physical stuff, the only way for those currently on top to remain so is to make money infinite for the time being; as long as it takes to buy up all the physical stuff and saddle everyone else with the other side of the abstract money coin; debt.

It's just feudalism, except instead of Dukes and Duchesses we get CEOs, assorted high rollers, and their high-ranking bureaucrat courtiers.  Instead of The Great Chain of Being, by which the privileges of the aristocracy were justified by saying it was God's Will, now we have debt and obligation for the lower orders, and wealth and impunity for the elites.

Same difference, really.  And just as heretics threatened the justification provided by the Great Chain of Being and therefore had to be horrifically dispatched as an example to others, Liberty Reserve etc. have to be charged with facilitating Child Porn (while HSBC, which really did launder drug billions gets a tiny peck on the cheek).

The worst offense of all is to question the legitimacy of the system.  That's why Bernie Madoff gets far more time than a serial killer.

It's hard to make sense of what we see going on around us in real time.  But this is just the First Class Cabin passengers colluding with the ship's crew to make off with all the lifeboats as the Titanic takes on water, while the rest of us are told to snuggle up tight in our lower berths.  As a member of the lower orders, it's hard to tell what to do for safety, but going belowdecks (taking on more debt obligations) seems like a very bad idea.

BeetleBailey's picture

I sometimes think this is a global "purge" in it's beginning stages....rid the world of the lesser masses, and more for the probably is a Bilderbooger/Trilateral/Douchbagist..."thing"..akin to Gore's and the Prog Frogs over-population mantra.....not enough to go around.....

Wars did this in the past. Post WWII, the world population swooned.

The Civil War wiped out much of the US male population....

I'm going troppo....fuck this

nathan1234's picture

Hi Beetle

Genl. Austin Halftrack has just landed over a 1000 marines in Jordan being sent ostensibly to the Jordan Syrian border .

Be ready for the call up.





Seasmoke's picture

I like seeing all the housing and fraud closure posts this week on ZH. It is about time !!!

Peter Pan's picture

The institutional investors better pray hard that those who have lost their homes and have become bank tenants, don't become angry and burn their places down in unison and then it will be interesting to see what kind of a return they get.


TheReplacement's picture

Burning rentals is nothing.  Hanging owners is what they need to fear.  Once enough people understand and/or become disenchanted deeply enough money won't matter.  I'm referring to the mainstreet as well as Occutard crowd.  At least the Occutards understand something is wrong even if they don't grasp what it is.

boeing747's picture

City of San Jose will forclose your home if you don't pay property tax for three years no matter how long your lender allow you to live in free of due mortgages.


PiltdownMan's picture

Cheap Fed money for hedge funds???????

medium giraffe's picture

In short: Because Fuck You, that's why.

vote_libertarian_party's picture

Banks aren't foreclosing because they don't want to book the losses.

astoriajoe's picture

but once the template was established, there was a plan for us all to subsidize their losses.

lolmao500's picture

Yep, thanks to mark-to-unicorn accounting rules and let's-hide-our-crappy-assets-off-the-books-and-it's-all-legal BS... can you imagine if every businesses ran like that??? Lulz it would be in history books and nobody would believe it... hell even today people don't believe it!

A. Magnus's picture

In the absence of Mr. Swearengen this just has to be said:


BeetleBailey's picture

Indeed sir....well stated...a Yeoman's job

Hal n back's picture

don't worry-it's almost over.


OneTinSoldier66's picture

As I've asked before...


When will The Fed, and it's crony's, and member banks greed ever be satisfied? When they have bought up the entire country and have it on their balance sheets? Will their greed finally be satisfied then?

brettd's picture

Since we, the governed, keep consenting, why would they stop?

Dig Deeper1's picture

Indeed, we’ve pointed out for years that all of the Obama administration’s “homeowner relief” programs are really just back-door bailouts to the big financial companies … and are not even intended to help homeowners.

I always find it humorous that nobody seems to be able to figure out that when the term "homeowner" is used it is shorthand for TBTF banks.  Individuals and families do not "own" homes they pay mortgages.  All of these helping hand programs that benefit TPTB have never been disguised at all.  You just need to understand the definition of terms.



DaveyJones's picture

beautifully said. Printing this and posting it near the office coffee

waterhorse's picture

"In other words, the giant financial service companies are attempting to privatize public resources, socialize losses, scam people out of their homes and other private property … and then rent back to us what we used to own for a hefty price. Do you understand the game now?"

Yes.  The rentier class has taken over.

waterhorse's picture

There are realistic ways to help the economy. For example:

Exactly!  But the big question is:  Will our scumbag corrupt "powers that be" allow any of the above?  I think NOT.

IdiocracyIsAlreadyHere's picture

And most importantly allow firms to actually FAIL.  Bankruptcy can be wonderful way of cleaning up the mess - anything worthwhile can be sold to people who actually have the ability to manage it and the worthless debts cleared forever.  But that is only for the little people and online after the FIRE sector has extracted their pound of flesh from them.

GoldIsMoney's picture

How about

Stop hindering markets to work?



vespasolo's picture

Case-Shiller index from 1900-2000 shows that home prices (in real dollars) have 

remained close to the same over that period.  So where is this a great investment?


Maybe the idea of owning a home and all its emotional narratives are worthless?

I have no problem renting and having the mobility to move cities or jobs without the attendant concerns 

of the wider economy. How cany anyone agree to a 30-year mortgage when the economy no longer provides

those types of jobs?  


So now a bunch of hedge funds own hard to maintain properties with doubling or tripling property taxes.




Home ownership is as new a phenomena as was the life-long job and a pension.

It worked for a while but then things changed. 



lotsoffun's picture

the point is - as you point out.  hedge funds own the hard to maintain properties with 2x - 3x taxes.  for now, before that happens.  in the meantime - it will be securitized and sold to YOUR PENSION FUNDS and when it turns out how truly stupid and unprofitiable this all was - your pension fund will need your taxes to prop the whole thing up.  net, net - you got LEVERAGED losses.  wall street loves leverage, especially when you helped them profit.

watch.  it's that simple if you understand.


vespasolo's picture

Agreed, they are tryign to securitize their assets, but as many postings here on ZH are pointing out,

its turning out to be more difficult then hoped. Obviously the main reason reference in the supporting articles

is that their is not enough time for people to conclude its a good business model.  Not enough data.

So as all their new tax assessments come in at the end of the year, with increased values that they inflated.   

Then they can finally feel the middle class pinch. Do you sit it out or try and sell.  


IF, as many in the comments section argue, that its not so easy being a landlord, let a lone a landlord of thousands of single family home then all we have to do is wait and see.  


As for pensions, my point was, they are a vestiage from the past. Most people who do have them are using them now in their retirement.

Hence the slow deflation of the market.  Retirees cashing out, and not enough new jobs that pay well enough for people to begin their nest egg in the market.  The same has been argued about the real estate market as well. 


So yes, Wall Street is seeking it plays out in the Buy-to-Rent market appears they may have finally met a place where the market can't  provide an exit.




moneybots's picture

Yep, the great financial fraud comntinues unabated.

Panafrican Funktron Robot's picture

Thank you for condensing/articulating this issue George.  It is interesting that they take a massive taxpayer bailout and use it to rip off... taxpayers.  Their obfuscation/propaganda techniques are mighty impressive, that we societally largely accept this.  

lotsoffun's picture

please keep in mind how doubly funded again this is, because a large number of these projects are expected to rent to 'section 8' which means welfare, so the government again steps in an bails out - because they will be paying most of the rent on these homes.  it's a huge ponzi.  as other people here point out, this time, the banks and private equity firms might really get stuck.  unless ------ ?????  big bad bama bails them out.


Oracle of Kypseli's picture

Wait till the inerest rates go up. Banks will have to keep renting f4eva. Maybe it's their turn to be upside down on their investment

If they count on the high end market, good luck. Because these folks can afford to buy.

Renting single family houses is a tough and messy market. And......rental managers skim the top with fictional repairs. Hey banksters, you will be taught a good lesson.

Larry Dallas's picture

people have been waiting 12 years for interest rates to rise. It ain't gonna happen soon.

Especially in a fed-manipulated market.