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Month: October, 2013

These People Will Cause The Next Mortgage Bubble-burst

If you love hating on banksters and Wall Street types generally, this post is for you.

If you’re looking to buy, sell or rent a house, you had better read on.

A Wall Street darling called the Blackstone Group dove head-long into the real estate market in 2011, buying up properties in nine major markets where home prices plummeted during the 2008 recession: Atlanta, Chicago, Las Vegas, Phoenix, Northern California, Southern California, Miami, Orlando and Tampa.

Their business model involves purchasing “distressed” properties – foreclosures and short sales – about half of them in cash. Then they warehouse, renovate and rent or flip the properties. They’ve bought so much property, in fact, that in the 12-month period ending in October of last year, prices in those markets surged 22%. Higher interest rates followed.

As Blackstone Group implies, the operation conducts business with other corporate entities or under a number of different corporate names.

One of these entities is Colony Capital, which marketed itself as “a fund with a conscience”. In February, the Colorado Division of Securities filed suit against them for “investment adviser fraud, securities fraud, offer and sale of unregistered securities and unlicensed investment adviser activity” with regard to stock and real estate holdings. [Read the complaint]

Among Blackstone’s group members are Riverstone Residential Group and Invitation Homes. These are the public-facing entities in the rental market particularly. Although in the game for a relatively short time, their reputations have all but been set in cement. Numerous complaints have been lodged across the country. Invitation has a Better Business Bureau rating of C- in both Chicago and Dallas; it has a B in Tampa.

Let’s talk about Tampa for a moment. There, institutional investors have sunk nearly a billion dollars into home purchases. Invitation Homes accounts for $326 million of that, according to property transaction records. The surge in these purchases has caused prices to escalate from between $100,000-$125,000 to $160,000-$175,000 over the course of less than a year, depending on the source cited. Rents in Tampa had averaged $1200, with 85% of Invitation Homes’ properties coming in above that average.

Their profits secured and only about 51% of the properties rented, these investors are now “slipping out the back door” and dumping properties back onto the market. Mortgage Bubble 2.0 looms as a threatened decline in prices would follow any glut of inventory on the market. Blackstone and Invitation deny having the capacity to cause a future bubble-burst. Others are far less gracious, referring to them as “America’s New Slumlord”.

And slumlords they appear to be. Read the complaints from all over the nation regarding their business practices [link]. We personally know a family that tried to find a rental, could not get calls returned by Invitation Homes, but finally did apply. No one would tell them what the security deposit would be – only that they should “apply and find out.” They were told to pay $35 per member of the family as if each represented a separate application. The lease terms could be revealed only after the fee was paid, by which time, the family’s financial data were saved to Invitation Homes’ servers.

Some who completed the process claimed they were not granted access to their rentals even after a lease was signed. Once admitted, they could not get service – or had unlicensed contractors show up to perform service. Upon moving out, many did not receive their deposits back; instead, they were presented with bills – some amounting to $700 over their deposit – for “damage” that they say was a figment of someone’s imagination. One person claimed to have tried to return keys to a property, was not given access to the contact who customarily received them and then charged for each day that the keys were not returned.

These are bad actors – vultures who first prey on the misfortune of those with underwater mortgages or who are in foreclosure. They manipulate housing values in the markets in which they operate. They price-gouge and engage in poor business practices. And they will flood the market with unwanted inventory, potentially causing the next mortgage crisis.

Housing is a necessity. There ought to be a law.

Sources / Further Reading:

Occupy Our Homes / Atlanta video (hint: read the captions!)

How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme–Again (Mother Jones)

http://www.motherjones.com/politics/2013/11/wall-street-buying-foreclosed-homes

Real Estate “Flopping” The New Corporate Screw Job (Daily Kos)

http://www.dailykos.com/story/2013/11/14/1255423/-Real-Estate-Flopping-The-New-Corporate-Screw-Job

Blackstone Funding Largest US Single-family Rentals (Bloomberg)
http://www.bloomberg.com/news/2013-10-23/blackstone-creating-rental-home-bonds-after-buying-spree.html
Families Blocked by Investors From Buying U.S. Homes (Bloomberg)
http://www.bloomberg.com/news/2013-10-24/families-blocked-by-investors-from-buying-u-s-homes.html
Blackstone, big investors slow their $800 million Tampa Bay home-buying binge (Tampa Bay Times)
http://www.tampabay.com/news/business/realestate/blackstone-big-investors-slow-their-800-million-tampa-bay-home-buying-binge/2145419
Investors still gobbling up thousands of Tampa Bay homes to rent out (Tampa Bay Times)
http://www.tampabay.com/news/business/realestate/investors-still-gobbling-up-thousands-of-tampa-bay-homes-to-rent-out/2128023
Giant investment funds fuel new boom in Pierce County real estate (News Tribune)
http://www.thenewstribune.com/2013/10/27/2857576/giant-investment-funds-fuel-new.html
Big Investment Groups Buying Up Charlotte (Charlotte Observer)
http://www.charlotteobserver.com/2013/07/12/4161095/big-investment-groups-buying-up.html#.UnJStZTk_S5
Why What’s Happening in Atlanta Should Matter to You (Huffington Post)
http://www.huffingtonpost.com/shabnam-bashiri/atlanta-blackstone-group_b_2617441.html
Meanwhile, Big Investors Quietly Slip Out The Back Door On Housing As “Stupid Money” Jumps In (Zero Hedge)
http://www.zerohedge.com/news/2013-05-29/meanwhile-big-investors-quietly-slip-out-back-door-housing-stupid-money-jumps
Blackstone Denies It Is the Cause Of Housing Bubble 2.0 (Zero Hedge)
http://www.zerohedge.com/news/2013-06-09/blackstone-denies-it-cause-housing-bubble-20
America, Meet Your New Slumlord: Wall Street (Blog)
http://libertyblitzkrieg.com/2013/01/09/america-meet-your-new-landlord-wall-street/

© 2013 Poligags
poligags.com

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America Was Not Shut Down Properly: Reboot!

US Not Shut Down Properly photo USnotshutdownproperly_zps27d9de92.jpg Image Credit: Pop Culture’s Conscience

This great little graphic got us to thinking… and although everyone is already weary of the subject, we wanted to explore it through our unique Poligags lens.

This shut down never had to happen. It was never supposed to happen. Remember the Fiscal Cliff Showdown that concluded just this last January? The threat of sequestration was supposed to be so hideously terrifying that our elected officials would never allow us to reach that point.

Except that they did.

Ordinarily, the country operates on a fiscal year with – get this! – a budget. A budget that is cobbled together with elements from the separate proposals offered by the President, the Senate and the House. This has not happened for some while, and as a result, we have seen governance by crisis, lurching toward precipices set at three- and six-month intervals.

There was an 18-month period during which congressional leaders were supposed to have found that magical mix of cost cutting and revenue enhancement that would deliver on an agreed-to target. They failed to achieve that goal, and the result was The Sequester.

Except for the parts that were too inconvenient. Those cuts disappeared.

The current fight that we’re witnessing is over a stop-gap. A resolution that would only carry us through until December 15…whereupon, presumably, we would endure the same fight all over again. Still no budget. Still no agreement on national priorities. Still no acknowledgement that the Constitution demands that all appropriations made by Congress are valid debts that must be paid.

America was not shut down properly. And, with default now looming on the horizon, it appears that we’re going to be partying like it’s 1929.

The Great Depression followed a number of economic imbalances that eventually led to the stock market crash and years of economic turmoil and hardship. There are some parallels between events of the 1920s and recent years:

1929

Now

Weak Banking Sector Fanny / Freddie, the mortgage “bubble” and the government shut down leading economists to predict “deep” recession
Weak Agriculture Sector followed by the Dustbowl Era of the 1930s Farm bill expired; no emergency response to the freak blizzard that killed tens of thousands of cattle due to government shut-down. GMOs, super-weeds, super-pests and pollinator-killing pesticides threaten a new “dustbowl”
Rapid growth in credit/loans increased people’s indebtedness; made “millionaires” on paper only Stimuli encouraged large purchases – e.g., subsidized mortgages – increasing indebtedness. Income inequality at an all-time high
Reduction in economic confidence resulted in borrowers with high exposure to try to redeem their debts Economic confidence stands at -34 with a high likelihood of worsening
Related to buying on credit was the practice of “buying on margin” and financing the remaining 80-90% Inappropriate stimuli include low interest loans
Mismatch between production and consumption. Sales of cars, the demand for steel and a slowdown in housing construction contributed to a decline in share values Manufacturing is not coming back. The foreclosure crisis continues. Many countries structured economies around exports, encouraging over-consumption by the US. Aggregate household consumption in 2009 was at an unsustainable 70% of GDP, according to the Journal of Accountancy

America was not shut down properly. In the 1930s, the New Deal provided for jobs and infrastructure programs. It created the FHA and other consumer loan agencies. The Social Security Administration was founded.

Many argue that the New Deal did not dig America out of the Great Depression. What it did do, though, was to lay a foundation for an unprecedented period of economic stability that lasted for some fifty years until supply-side trickle-down Reaganomics began chipping away at the reforms and policies that yielded sustainability.

So go ahead. Reboot America – in safe mode, of course.

Just as the United States came out of the Depression stronger and improved, we can (we’ll have to) do it again. We will reinstitute banking safeguards such as Glass-Steagall. We will get the corrupting “dark money” out of government and reverse Citizens United. We will create jobs that also rehabilitate our crumbling infrastructure. We will cap the CEO to worker pay ratio. We will ensure healthcare for all citizens. And we will vote out the perpetrators in 2014. Reboot.

© 2013 Poligags
poligags.com

UPDATE: On October 16, the Senate passed a continuing resolution to reopen the government by an 81-18 margin. It then went to the House, where it also passed, 285-144. While good, keep in mind, we’ll be going through this again in January 2014…and that no fewer than 162 legislators chose to perpetuate the shutdown and risk the “full faith and credit” of the United States.