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Big investment companies are buying houses at high prices and renting them out, squeezing would-be homeowners
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Big investment companies are buying houses at high prices and renting them out, squeezing would-be homeowners

Rising housing prices across the nation are putting first-time homebuyers in a bind.

While record-low interest rates make mortgage financing incredibly easy, few people can actually afford to take advantage of these loans because prices for houses are too high. Part of the problem has to do with soaring lumber costs, which is driving up the price of building. There's also a labor shortage for builders, which means many would-be buyers fighting with each other to find pre-owned homes, which is driving up those prices.

Those that can afford to buy a house are having trouble finding one for sale before someone else buys it. Another dimension of the problem is these first-time buyers aren't just competing amongst themselves, they're also facing competition from large investment companies who are buying up houses to turn them into single-family rentals, blocking many Americans from becoming homeowners.

A new report from the Wall Street Journal details "the rise of big investors as a potent new force in the U.S. housing market." The story covers the example of Fundrise LLC, an online property-investing platform that purchased 124 houses in Conroe, Texas, for $32 million, paying building firm D.R. Horton Inc. "roughly twice what it typically makes selling houses to the middle class" — illustrating how home builders stand to make more money by selling houses to investment firms instead of middle-class Americans who want to own their first home.

The report goes on to detail how "yield-chasing investors are snapping up single-family houses to rent out or flip," contributing to the scarcity of houses for sale and driving up prices for everyone.

According to one estimate from John Burns Real Estate Consulting, as many as 1 in 5 houses sold in the nation's top housing markets is purchased by someone who will never move in. As a result, the consulting firm expects prices to continue to rise, climbing 12% this year and at least 6% more in 2022.

"You now have permanent capital competing with a young couple trying to buy a house," said company CEO John Burns. "That's going to make U.S. housing permanently more expensive."

Burns notes there are more than 200 big money companies and investment firms competing with families and first-time buyers for houses, including titans of finance J.P. Morgan Asset Management and BlackRock Inc.

Important changes are happening in the housing market because of the involvement of big money investors. The record-level home prices driven by firms paying much more than regular people can afford for these homes, or maybe even more than the homes are worth, could lead to a market bubble.

The Journal's report compared the speculative bubble created by these investors to the housing bubble that began in 2004 and 2005 and ended with the 2008 financial crisis.

Also, many of the houses bought by these companies are not being sold to potential homeowners. Entire neighborhoods bought by Wall Street are being turned into rentals, leaving few options for those who want to own a home.

With prices rising and big companies outbidding the middle class for the few houses that are available, how are families ever going to afford to own a home?

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