The New York Times Writes: Wall Street’s New Housing Bonanza

house of cards

Wall Street’s latest trillion-dollar idea involves slicing and dicing debt tied to single-family homes and selling the bonds to investors around the world.

That might sound a lot like the activities that at one point set off a global financial crisis. But there is a twist this time. Investment bankers and lawyers are now lining up to finance investors, from big private equity firms to plumbers and dentists moonlighting as landlords, who are buying up foreclosed houses and renting them out.

The latest company to test this emerging frontier in securitization is American Homes 4 Rent. The company talked to prospective investors at a conference in Las Vegas last week about selling securities tied to $500 million of debt, according to people briefed on the matter.

“The investment and lending opportunities are immense and perhaps just beginning,” Jade Rahmani, a real estate analyst with Keefe, Bruyette & Woods, wrote in a recent report.

In just the last two years, large investors have bought as many as 200,000 single-family houses and are now renting them out, according to the K.B.W. report.

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by Alex Dvorkin

If you were searching for evidence that our nationwide housing market recovery has been driven by speculators and massive credit, wonder no more. Massive flood of capital from the FED’s into financial institutions has created all sorts of stupidities. This is one of them.

Trust me. Hedge funds providing massive amounts of capital “to plumbers and dentists moonlighting as landlords” is not as brilliant as it sounds. As a matter of fact, it is fucking stupid. The only thing it will lead to is massive losses down the road for everyone involved. Big losses for hedge funds, for plumbers and dentists, for the FED, for the overall US Economy and for the average Joe with a house and a mortgage.

No one is talking about the elephant in the room. Overall and after taking expenses associated with being a landlord into consideration, no one is making any money. There is no yield. Everyone is betting on capital appreciation to make a profit. I am afraid such capital appreciation will never arrive. Please see my Real Estate Market Top article here.

You also have to read between the lines to see the massive system wide risk. For instance, why the fuck would hedge funds who are awash with free cash from the FED invest in plumbers and dentists who would in turn become landlords? For two reasons..

1. Everything is extremely overpriced. In bubble territory. The bond market, the stock market and even the real estate market. They are investing in plumbers because there is nothing else left to invest in.

2. Everyone is playing the game of musical chairs, chasing performance. The money is FREE, so why not. Of course, we know what happens next. The music stops and the real estate sectors gets flushed down the toilet….again.

If this article doesn’t scream “market top” to you, I don’t know what will. Don’t be fooled by Wall Street once again. I am just curious to see what will happen to the real estate prices once “investors” decide that being a landlord sucks and begin dumping hundreds of thousands or perhaps millions of properties they have purchased. I wouldn’t be surprised to see 50-70% haircut from today’s real estate prices. Here is my valuation work.

The bottom line is, stay away from this Ponzi Scheme and don’t buy real estate over the next few years. You can send me a gift basked later.

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