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Blackstone Denies It Is the Cause Of Housing Bubble 2.0

Tyler Durden's picture




 

Following widespread discussion of the impact that Wall Street investors (gorging on the Fed's free-money extravaganza) have had on home prices, today's final straw for Blackstone appears to be the New York Times' editorial suggesting/blaming them (and others) for driving up the prices of single family homes and reducing the supply of affordable housing for first-time home owners. Blackstone decided to hit back with some of its own version of real estate truthiness via its' blog and why it is "proud of what it is doing in the housing market." So here are the six reasons that Blackstone believes laying the blame for housing bubble 2.0 at their (them being Wall Street) feet is wrong (and a few short responses to their perspective).

Via Blackstone:

While we share the NYT’s concerns that affordable housing is an important matter of public policy, to blame Blackstone for the rise in house prices is wrong and ignores the positive good that private capital plays in the housing market. We want to make the following points:

First, Blackstone is not buying houses in sufficient numbers to make an overall difference in house prices. Blackstone, through its subsidiary Invitation Homes has bought 29,000 homes, representing three hundredths of one percent of all US housing (out of 115 million total units). We have acquired 25,000 of those homes over the past 12 months, representing only four tenths of one percent of home sales during that time (5.6 million total home sales). We have also purchased homes in just 13 of the more than 300 metro areas across the country.

[ZH: (as discussed here) First, it is not simply the number of homes that Blackstone is buying but the entire cohort of Wall Street. Second, it is not simply the number of homes that Blackstone has successfully bought but the number of homes it has bid on - by simply bidding with considerably lower costs of capital, the 'auction' process of final purchase price is exaggerated. Third, the marginal buyer is all that matters - just as if 1 person bought 1 lot of AAPL shares at $1111 then he sets the 'price' and in real estate, transactions are both sticky, time-consuming, and apply broadly to the comps that house is in - thus lifting entire regions on the basis of one over-cheap credit provided home bidder.]

Second, prices of homes are rising simply because the country has not built enough homes. Over the past 4 years, the US has added only 700,000 homes annually (single- and multi-family) on average, while population growth and obsolescence require an estimated 1.5 million units to meet demand.

[ZH: (as discussed here) This is simply false - there is a 12.6 million home overhang based on the latest data; there is no home shortage, there is an inventory shortage since banks are unwilling to release inventory since it is 1) appreciating in the bubble, and ii) maintaining the illusion of a healthy recovery]

Third, home prices remain well below long term trends despite their recent increase. New home prices nationally are 37% higher than existing home prices, as opposed to the long term average of 13%. Home prices are still 22% below the long-term price trend from 1951-1999. This is why home prices are rising even in cities where Invitation Homes is not buying, like Detroit and Salt Lake City, where prices have risen 19% and 10% respectively year over year.

[ZH: (as discussed here) These data points are simply incredulous. Prices are screaming higher; these trends that they mention are apples-to-carrots comparisons and simply put, as Fitch notes, "the recent home price gains recorded in several residential markets are outpacing improvements in fundamentals and could stall or possibly reverse." http://www.zerohedge.com/news/2013-05-28/haunted-last-housing-bubble-fit...]

Fourth, Invitation Homes' purchases have little to do with first-time home buyers or existing home owners. Invitation Homes only buys post-foreclosure homes, after all attempts at loan modification and other measures have failed. Moreover, these homes are often sold at auction for cash, requiring settlement in three days and often significant capital expenditures in fix-up costs. Few, if any, first time home buyers can do this.

[ZH: This completely ignores the chain-of-buyers that produce homeowners. First, buying any home with artificially cheap credit (cash in their case sourced from a credit market willing to lend willy-nilly to the big banks and managers for negligible yields) impacts the price at the margin, raises comps across entire regions as we mentioned above, and prices 'out' the first-time homebuyer - who could potentially have afforded one of the post-foreclosure homes.]

Fifth, foreclosed homes are usually abandoned and a blight on the neighborhood, contributing to a downward spiral of home prices. Cleaning and fixing up these houses and putting in stable long term renters improves neighborhoods and the value of everyone’s home. We have 1,000 employees and 10,000 contractors fixing up the homes we have bought and have to date invested around $500 million in home improvements in addition to the cost of the homes. When neighborhoods improve and house prices stabilize or rise, this is a good thing – fewer homes are underwater  and homes are easier to sell, which is good for both sellers and buyers.

[ZH: We are here to help... it's for your own good... this is as close to Goldman's "doing god's work" as it gets.]

Sixth, increasing the supply of rental housing is a good thing.  Before Blackstone started buying homes, there were already 13 million single family homes for rent in the US. This is an important part of the housing market. Renters should have the opportunity to live in a good neighborhood and send their children to good schools. Invitation Homes offers a national platform providing quality homes and a high level of service. Moreover, our houses rent at affordable rates - average rents per square foot in our single family homes are approximately 30% below comparable multifamily rents.

[ZH: Having been priced out of homeownership, being forced into renting often means paying more monthly than a mortgage (for equivalent residence) or downscaling. With broadly oligopolistic landlords this also sustains the rental price market. Are we simply to lay back and see the nation's real estate now taken over by the banks and asset managers thanks to a Federal Reserve providing them with relatively free-money that squeezes out the normal 'real' buyer? It seems that if their argument is taken to its logical conclusion, we will all become renters until the banks decide to dump the 'trade'.]

We welcome this discussion; we are proud of what we are doing in the housing market.

 

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Sun, 06/09/2013 - 18:16 | 3640161 Atomizer
Atomizer's picture

Really? That’s not what the LIBOR investigation reveals.

Sun, 06/09/2013 - 18:26 | 3640203 Careless Whisper
Careless Whisper's picture

SEVENTH, we love you and are doing this for the children.

Sun, 06/09/2013 - 19:13 | 3640326 jbvtme
jbvtme's picture

if there are 12 million vacant and sequestered houses and 11 million mortgages underwater, blackstone (with 30,000 buys)  is playing patsy

Sun, 06/09/2013 - 20:10 | 3640563 Midasking
Midasking's picture

If we can get the stock bubble to really get going we could have this housing mess fixed in a few weeks.. http://tinyurl.com/n8hmfya

Sun, 06/09/2013 - 22:43 | 3641034 TheFourthStooge-ing
TheFourthStooge-ing's picture

Blackstone: "Booz Allen did it."

Mon, 06/10/2013 - 00:32 | 3641241 imbtween
imbtween's picture

Apparently, they're all in on it. I may have missed ZH coverage of this, but damn. Fannie Mae sells 275 foreclosed homes in the Phoenix, AZ area to an LLC - formed by ITSELF.

http://www.azcentral.com/business/realestate/articles/20120727mystery-bu...

Seriously?

Sun, 06/09/2013 - 18:25 | 3640196 jim249
jim249's picture

We are your friends. You need us!

Sun, 06/09/2013 - 19:34 | 3640425 YC2
YC2's picture

Well, try either think the public that would read this is comprised of morons or have a half-baked understanding of real estate, or both...

Sun, 06/09/2013 - 18:29 | 3640210 20834A
20834A's picture

In re the 5th point: Renters hardly ever 'improve the neighborhood'. They have no reason to invest more funds refining a property they don't own. And landlords of every stripe put in the minimal amount possible for upkeep, else how do they make a profit? If single families had acess to cheap money the way these companies do, they'd snap up the foreclosures and there would be no blight. I speak from experience, as I bought my first home (foreclosure) from a bank.

Mon, 06/10/2013 - 08:13 | 3641564 earnulf
earnulf's picture

Very Valid Point.    "renters" have no skin in the game, therefore they "use" the property to the extent that their upbringing provides.    They don't care about leaks (unless it's affecting their PS3 Play), insect infestations, mold or anything else including proper care for a domicile, thus a prime reason they are "renters".     Landlords as you pointed out, are just in it to turn a profit and if they have to fix every burned out light bulb or repair the AC/Heater or pay for yard work or trash collection, then they "lose" money.

Neither side really cares as long as the rent payment isn't more than 30 days past due.

Sun, 06/09/2013 - 18:44 | 3640248 g'kar
g'kar's picture

Blackwater, Blackstone, Blackbeard, Blackmail, Blackball, Blackout.......I'm drunk...forget it.

There are no angles that TPTB haven't covered to trample and cull the herds.

 

Sun, 06/09/2013 - 19:42 | 3640466 Colonel Klink
Colonel Klink's picture

You forgot Blackheart!

Mon, 06/10/2013 - 05:25 | 3641436 Disenchanted
Disenchanted's picture

and BlackRock...Fuck you and your BlackRock Money Market Trust Fink.

Prism Bitchez

Sun, 06/09/2013 - 18:52 | 3640269 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Dear Mr. Schwarzman,

You have thusly been bitch slapped.

Sincerely,

DB

Sun, 06/09/2013 - 18:53 | 3640274 fukidontknow
fukidontknow's picture

Thankyou Wall St where would we be without you.

Sun, 06/09/2013 - 19:04 | 3640304 buzzsaw99
buzzsaw99's picture

Nothing depreciates a house and a neighborhood faster than wholesale rentals.

Sun, 06/09/2013 - 19:12 | 3640329 vespasolo
vespasolo's picture

Anectdotal Investor story:

 

My wife and I bought a condo in North Miami Beach in Jan 2011. It was a beat up 2-bedroom for a very good price and we fixed it up as our main residence.

 

We moved into it and soon found that all new sales in the 24 unit building were going to investors (mainly from S. America, and out of state).

I was president of the board and saw sales to buyers in Argentina who were buying over the phone with cash.

The building slowiy turned over to a 75% renters in about 7 months.  Some owners had lived in the building since it was built in 1970.

While some owners were as much trouble as owners, the continuous churn of renters moving in and out of the building quickly overran our resources.

 

The board (mainly investors) voted down getting a management company to deal with the new compostion of the building as they didn't want to sacrifice any of their income. 

 

So, we sold at the end of last year to another investor:

The buyer was a Colombian maid who claimed she made $650/week and somehow managed to show a bank 

account with 150k dollars in it.  She paid cash and became the next "smart" money to become a landlord.

 

My guess is that the next bomb to hit, particulalry down here in S. Florida, is the resetting of property taxes to new valuations at the end of the year.

In Miami its 2.6 percent, (its how they make up for no income tax). 

 

I am sure Wall Street wants to get out as soon as the two tax period is over.

 

We will see who is first to the exits.

Sun, 06/09/2013 - 20:54 | 3640703 Promethus
Promethus's picture

Sixty miles north of you there is a gated community full of half million dollar Mcmansions flippers walked away from.  Investors came in and turned them into section-8 housing.  Investors don’t care who rents the place cause Uncle Sam will foot the bill and pay for the repairs. Slum dwellers with granite countertops and swimming pools. Investors are the new carpet baggers.

Mon, 06/10/2013 - 00:16 | 3641222 John Law Lives
John Law Lives's picture

Thanks for sharing your story, vespasolo.  Very interesting.  I am surprised the condo by-laws did not restrict the number of units that could be rented out at any one time.  That is a red flag re. a condo.  I know about it, as the condo I recently escaped from was the same way.  There were more renters than homeowners living there when I moved out.  I felt fortunate to find a qualified buyer, because the condo was not FHA Approved when I sold it.  It was my personal experience that renters generally did not care much about the maintenance of the condos... so long as the AC worked and the fridge kept their beer cold...

 

Sun, 06/09/2013 - 19:15 | 3640345 IndicaTive
IndicaTive's picture

"oligopolistic

Anyone else have to look that one up?

Sun, 06/09/2013 - 19:19 | 3640359 Yen Cross
Yen Cross's picture

      Where's the leader of the herd/ Chairman and Chief Executive Officer. Stephen A. Schwarzman

   F**k  Peter Rose, and his backdoor spin!

Sun, 06/09/2013 - 19:18 | 3640360 Seasmoke
Seasmoke's picture

Another gang of the Tribe.

Mon, 06/10/2013 - 05:31 | 3641438 Disenchanted
Disenchanted's picture

Think this has changed much since 2010?

Jews Dominate Vanity Fair 100 Most Influential Moguls List . . . . I guess the Swiss Cheesepopes better sue the Jewish Daily Forward blogger Michael Kaminer...
Sun, 06/09/2013 - 19:19 | 3640368 PiltdownMan
PiltdownMan's picture

Government bails out banks. Banks lower rates. Banks buy distressed RE at a discount.

Hmm.

Sun, 06/09/2013 - 19:30 | 3640385 mophead
mophead's picture

"Blackstone Denies It Is the Cause Of Housing Bubble 2.0"

Wrong!

Sun, 06/09/2013 - 19:36 | 3640429 TahoeBilly2012
TahoeBilly2012's picture

American homes are framed and built with wood. These homes being help off market, built in the last 10 years, are built of 4-5-6 growth lumber and prodycts made from that lumber. These homes require an immense amount of maintenance, with their 30 years roofs (which last 15) and their "one coat stucco" systems, so easy a mexican tomatoe picker can do the job.

The mold, rot, settling, leaks, rats, termites, bad plumbing in these homes are one VAST EXPERIMENT! You probably get more value buying a Detriot crack den built in the 1920's -30's, at least the lumber was 1st growth lumber.

No thanks 'Merican Dream!

 

 

Sun, 06/09/2013 - 20:08 | 3640561 devo
devo's picture

It's a shame the roofs last 15 years. Imagine how many jobs would be created if they just lasted a year?

/sarc

Sun, 06/09/2013 - 19:55 | 3640522 Judge Crater
Judge Crater's picture

Blackstone is in the home rental market for the short term, and will bail out fast when the housing market craters again.  The investors in Blackstone's housing scheme are just looking for income.  Will these investors be surprised when their investment goes "glug, glug, glug" in 18 months.

Mon, 06/10/2013 - 08:32 | 3641600 andrewp111
andrewp111's picture

Blackstone will dump its houses into the hands of greater fools before the market craters again. I'm sure Blackstone will do just fine.

Sun, 06/09/2013 - 20:16 | 3640583 hooligan2009
hooligan2009's picture

wow, Blackstone has 1,000 employees and 10,000 contractors investing $500 million on only 29,000 homes!!!!

thats $17,241 on average per home..that labor must be real cheap...or else its free and that is the price of what?  a new kitchen? rewiring? repainting?

this to improve (average house price of 29,000 homes at an average of $200,000) an investment of $5.8 billion?

 

 

 

Sun, 06/09/2013 - 20:36 | 3640647 holdbuysell
holdbuysell's picture

Zero Hedge: 1

Black Stone: 0

Sun, 06/09/2013 - 20:37 | 3640649 holdbuysell
holdbuysell's picture

Blackstone's public denial is all one needs to know that they are lying.

Mon, 06/10/2013 - 05:01 | 3640652 smartstrike
smartstrike's picture

Blackstone rushed to go public in 2007 right before the market peaked. The initial IPO was given green light to a significant Chinese Sovereign Fund investment, this was a first. It was founded by Pete Peterson, a former Nixon appointee, and Steven Schwarzman another Nixon appointee.

Pete Peterson uses his billions to promote Social Security dissolution through his notorious Pete Peterson Foundation propaganda machine and Steven Schwarzman called Obama's modest 3.5% tax hike on top 1% of earners same as Hitler's invasion of Poland? Image a Jew that equates Hitlers' gas chambers to insignificant income tax rise on people like himself?

Blackstone is nothing more than leveraged RE Ponzi scheme made possible by zero interest rates and insider connections to government officials. This so called Private Equity relies on 100% debt funding. The firm assumes no risk and received TARP hand outs.

Sun, 06/09/2013 - 20:41 | 3640659 razorthin
razorthin's picture

Of course it's not.  That would be the Fed.

Duh!

Sun, 06/09/2013 - 20:51 | 3640685 socalbeach
socalbeach's picture

No comment on whether or not the other 49 states are in a r.e. bubble, but Bruce Norris has a perfect track record predicting the ups and downs of CA real estate since 1997, and he says no.  Recorded Friday, June 7, 2013. 1 hr, 7 mins:

California Comeback 2: Fast, Furious and Dangerous by Bruce Norris

Mon, 06/10/2013 - 00:36 | 3641245 NihilistZero
NihilistZero's picture

I'll take math over an economic forecaster any day.  The math says CA is in an unsustainable housing bubble, again.

Mon, 06/10/2013 - 01:21 | 3641297 Missiondweller
Missiondweller's picture

Especially here in the Bay Area

Mon, 06/10/2013 - 01:47 | 3641325 socalbeach
socalbeach's picture

The affordability index for CA as a whole is higher than it was in 1997 before the huge runup in prices through 2006 (see video).  That index depends on income, interest rates, and home prices.  Despite many claims CA is in a housing bubble, I've never seen any math that shows a bubble for the state overall. Just pointing to a price graph that has risen rapidly as CA housing has done over the last 1.5 years doesn't prove anything.

Mon, 06/10/2013 - 07:53 | 3641548 dunce
dunce's picture

Your logic is flawless, but Ca. exists in a twilight zone where math has different rules. Perhaps it was one of those earth quakes that shifted them out of our common reality about 50 years ago. My evidence is not just their real estate market but their government taxes and spending that are all wrong by outside conventions.

Sun, 06/09/2013 - 21:04 | 3640721 CMY
CMY's picture

It's kinda cute how they quote ALL home sales into their statistics (gee..it might look a *little* worse if they just focused on the sub 200k market) and ignore the 10-15 other firms doing the exact same thing (sometimes in the same neighborhood).

A good chunk of these homes (do a search for "colony american homes bulk") never even make it to the courthouse steps.

Sun, 06/09/2013 - 21:25 | 3640785 duhhhhhh
duhhhhhh's picture

palm beach county has seen obama care equivalency in real estate where by Fannie is writing 3% down mortgages again and there is no termite inspection or appraisal required. Apparently the scarcity of real estate has the homes being bid up over asking so they are already negative equity at closing even at a mere 3 % down, hence, no appraisal. Its only a matter of time.

Sun, 06/09/2013 - 21:32 | 3640809 GMadScientist
GMadScientist's picture

"See we didn't buy that many homes, only the ones in these specifically inflated areas worth more than $1.2M" - Black Sharks

 

Sun, 06/09/2013 - 23:26 | 3641127 yogibear
yogibear's picture

Seems like taxing ownships have a new sugar daddy with deep pockets. Time to raise property taxes big time on investors, their stuck with the properties.

Mon, 06/10/2013 - 00:02 | 3641190 Au Shucks
Au Shucks's picture

I am living in an Invitation home now... just about finished passing the losses on to the bank through a foreclosure which last almost 3 years with an attorney who delayed the process as much as possible.  Now the bank is offering me 3500 to had them the keys and make sure all the trash is out of the house!  Unreal, but sadly true.  Anyway, I digress... Invitation homes... live in a rental of theirs now and I can say from experience a couple of things that are opposite of Blackstone's official position.

1.  The per square foot prices is NOT 30% lower than the average private owner rental... in fact, it is 5-10% HIGHER.  I did not now this was a Blackstone portfolio house when I signed the lease.. I just needed a place and this is actually quite nice.  Blackstone paid 200k for the house (short sale, owners divorced and wanted out)

2.  They are NOT looking for "long term renters" to help blight, etc. etc.  They would only agree to a 1 year lease, and i had to agree to let them show the house for sale during my final 3 months in the house.  This actually works fine for our situation, but I wanted a 2 year lease at least.

I'm not sure of this last part, but it is my suspicion that they will seek much higher rent for the 2nd year as most of their renters have gone through a foreclosure and have less options available to them.  I was told something to this effect by the real estate agent who represented Invitation homes. 

So, there you go.. two absolute untruths.  Where there's one roach....

Mon, 06/10/2013 - 01:24 | 3641298 Missiondweller
Missiondweller's picture

Sounds like they plan on dumping the home in a year.

"i had to agree to let them show the house for sale during my final 3 months in the house."

 

 

Mon, 06/10/2013 - 00:36 | 3641247 adr
adr's picture

Billionaires always have the best interests of others in mind whenever they do anything. By giving low income individuals access to housing once reserved for middle class working people, it shows compassion. Also that if you do fall on hard times, you to can live just as you were, even if you have no income. This service to the people is worth far more than the wealth generated for the Blackstone board. In fact the billions made is pocket change compared to the economic activity generated by the citizens helped through the programs.

Is that good enough for me to get a job with the Blackstone propaganda department?

I think a simple, fuck you assholes, says enough.

Mon, 06/10/2013 - 01:25 | 3641302 Missiondweller
Missiondweller's picture

When they say "four tenths of one percent" they failed to mention the billions are going into just a few real estate markets like the SF Bay Area where housing prices are up 25% year over year.

Mon, 06/10/2013 - 02:24 | 3641360 Expat
Expat's picture

aLL yOUR bASIS pOINTS aRE bELONG tO uS.

Mon, 06/10/2013 - 07:34 | 3641527 bourbondave
bourbondave's picture

So what is the point here?  What's wrong with a private business buying on-the-market homes?  Are those of you that are criticizing suggesting the government should ban such sales?

 

Mon, 06/10/2013 - 08:22 | 3641577 earnulf
earnulf's picture

Nope, just that free money to Wall Street Firms should be made available to the common man as well.   Level that playing field instead of tilting it in favor of those who have the politicial clout to gloom onto our tax dollars.

Mon, 06/10/2013 - 08:31 | 3641598 bourbondave
bourbondave's picture

That makes more sense to me.  Thanks for the response.

Mon, 06/10/2013 - 13:18 | 3642686 Douglasnew
Douglasnew's picture

So let's get this straight. You guys (Wall Street) turbocharged the ponzi scheme with bad loans circa early-mid 2000's packaging and selling them to unsuspecting aftermarkets. The post-Lehman collapse happens and mal-investment was rewarded by Treasury & The Fed rather than punished, with nobody implicated for FRAUD. You then proceed to buy up the spoils as any red blooded carpet bagger would & should and then proceed to collect rent from your dispossessed sheeple as newly minted indentured servants. You then claim to be a societal do-gooder? How Sir(s), do you sleep at night?

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