Ever wonder why whenever we get a glimpse of Europe, especially England, we see photos of stately estates with huge castle-like mansions? The media sound bite quickly moves on to whatever their story point is addressed like crowning a new royalty. However, my point is the actual estate. It is sad enough that citizens were exploited to build these privilege structures, but my point is this: aristocrats never sell their property. The history of an estate goes back as long as the time of the area becoming a modern nation.
History also has multiple examples how aristocrats hold shelter. When English aristocrats took control of Ireland, people were evicted in mass. They raised rents and made a nation full of sharecroppers. In anti-bellum South, we see the same attitude. The war changed the landscape, but the thinking came back strongly. There are plenty of mansions on a hill that are surrounded in poverty. Of course, time has changed this too. Now, the previous wealthy sold their hilltop locations for a guarded gate community.
The US in general, has never had this problem as we developed social mobility. However, our standard of living took a double hit. Our jobs were exported. Our social mobility suffered. Then, the last housing crisis in 2008 changed the landscape. With the recession home builders scaled back their developments. Their data showed more interest in high-end housing. The traditional single-family starter home was abandoned by market forces. Thus, this action damaged the three-step approach in housing: the starter, the family home and retirement home.
Builders cannot meet demand for starter homes for many reasons. Inflation made the cost/sale approach not feasible. Builders also suffered labor and supply shortages due to COVID-19. The family home is now blended into a gated community that looks to add amenities to attract buyers and buyers who will pay more. The retirement home is also now a community. It is also developing its unique problem - resale. When an aged resident passes, who seeks to buy? Arizona is feeling this housing problem. Florida could be next in places like the Villages.
Then, this danger emerged within the market: House flipping. There is nothing wrong with repairing a home and reselling it. It makes the community stronger. It is actually a small business that helps the economy as a whole. The problem is big fund managers took notice like BlackRock. They realized that they too could buy all the distressed homes on the market in 2008. They bought. They repaired, but they never had the intention of reselling. They raised rents and they keep raising rents. We are now a rental nation. The problem is this: those distressed homes should have been resold into the market. They would have become the starter home in the three-step housing formula. It didn't happen. Those homes are now acting like aristocrats in Europe. They will be held forever by these big funds who are now one-third of the buying market.
Market Forces...
are showing the demand for rentals. The last quarter of the year is the slowest for rentals. However, recent data shows that occupancy is at record levels. According to Real Page, a tech real estate platform, property owners are asking and getting new leases at 13.9% higher than the previous period. At the moment, the rental market has more demand than the for-sale market.
The strength of the market is reflected with rent prices rising 0.6% just from October. This goes against the long-term data of declining demand at the end of the year. Of course, high real estate prices are a core reason why consumers are trending toward the rental market. Rental growth is the highest in sun belt regions and lowest in the Midwest. Minneapolis saw the lowest price increase of just 4% year-over-year. Put this info with what Europe has showed.
Europe has always had the problem of social mobility. Due to its land size, housing development is limited. Almost all the housing in Europe is rental and the owners are the aristocrats of our era. The US is suffering the high cost of shelter which makes the trend a dangerous road. By the way, the crooked Fed does not include shelter in its phony matrix inflation formula. It is another reason to End the Fed!
A home is a man's (family) castle. Set a goal to be a homeowner. Don't fall prey to the schemes of the rich. Peace.
