Why Home Prices Are Going Up

Why Home Prices Are Going Up

 "According to most of the media, the housing market in the USA is currently "dominated by institutional investors". The largest of these (by far) is Blackstone (BX) which has about $60B in real estate assets under management. It currently owns about 31,000 single family homes in the USA with a total book value of about $5 billion. $5 billion sounds like a lot of money, but everything is relative. The total value of all homes in the USA is roughly $20 trillion. So Blackstone's rental inventory represents approximately 0.03% of the housing stock value. Foreign buyers as a group are more than 13 times as significant as Blackstone. According to NAR's reports, for just the 12 months ended March 31, 2013 foreigners spent $68.2 billion on US homes. The Chinese accounted for 18% of that number or $12.3 billion. Nobody (including me) is claiming that the Chinese are dominating the market, yet they spent more than twice as much as Blackstone's entire inventory. Blackstone represents about 30% of all the institutional ownership, so the total value of all the single family homes owned by institutions is roughly $17 billion. This is only 25% of the value of all homes bought by foreigners in the period April 2012 to March 2013.Large numbers seem to cause some people to lose their sense of proportion and form completely false impressions of reality. Many of them write blogs on housing and articles for news outlets. Many of these are misrepresenting the state of the housing market right now. Their conclusions are bogus.Home prices are NOT going up because of institutional investors. It is the other way around. Institutional investors are buying homes because their prices are going up. In other words - they are not stupid and can recognize an opportunity to own an appreciating asset and have their holding costs paid for by a third party - their tenants.

Home prices are going up because of chronic low supply. It is as simple as that."


-Michael Orr
July 9th 

The Cromford Report



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Phone: 623-703-7445
Dated: July 9th 2013
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