Is Wall Street muscling out individual home buyers?

The recent 12.1 percent jump in home prices might not be as encouraging as it first seemed

Global investment firms like the Blackstone Group are buying up real estate in places like California, Florida, and Nevada.
(Image credit: Justin Sullivan/Getty Images)

With U.S. home prices jumping 12.1 percent from April 2012 to April 2013, it looks, at least on the surface, like the housing market is continuing to rebound from the dismal lows of the subprime bust and Great Recession.

April's tally was the largest increase in seven years, and states hardest hit by the housing crash saw some of the biggest gains. Nevada saw home prices increase by 24.6 percent; in California, that number was 19.4 percent.

The problem, writes Nathaniel Popper in The New York Times, is that many homes aren't being bought by families recovering from the Great Recession. Instead, Wall Street — the very collection of banks that helped create the bust by encouraging risky mortgages — is snapping up houses.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

That means the recovery numbers might not be as encouraging as they seem.

"The growth is being propelled by institutional money," Suzanne Mistretta, an analyst at Fitch Ratings, told The New York Times. "The question is how much the change in prices really reflects market demand, rather than one-off market shifts that may not be around in a couple years."

Companies like the Blackstone Group, which has bought 26,000 homes in nine states, are investing billions in real estate in places like California, Florida, and Nevada. The firms have become temporary landlords, renting out the homes until it seems profitable enough to sell them.

On the plus side, damaged homes that normally would have gone unsold are being bought. And some analysts say that banks' large-scale investments could help lead to a more thorough recovery.

But that may be little consolation to individual home buyers.

Take Charlotte Dewaele. At six months pregnant, she's eager to find a house in California. The problem? She keeps getting outbid.

"We're getting beat out by people with cash, by investors, and by people putting in offers that are just so much higher," Dewaele, who has bid on 15 homes, told CBS News. "It's very frustrating."

Another issue: In many markets, home prices are growing faster than the local economies. That could be a problem, Mistretta told The New York Times, because the recovery could falter if big investment firms decide to cash out.

To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us

Keith Wagstaff is a staff writer at TheWeek.com covering politics and current events. He has previously written for such publications as TIME, Details, VICE, and the Village Voice.