Sherri Park: ‘Monster Money’ is driving up the price of homes

Money managers and hedge funds are swooping in to buy homes and raise the price of housing.

(Francisco Kjolseth | The Salt Lake Tribune) A home for sale in Salt Lake City on Tuesday, April 27, 2021. Even with housing demand in Utah at historic highs, home sales along the Wasatch Front dropped earlier this year for a lack of supply. Prices, meanwhile, keep climbing for single-family homes as razor-thin supplies dampen sales and buyers go for more affordable alternatives such as condominiums and town homes.

A family member and his wife put in a bid on a house. The property was listed at $360,000. Their agent suggested that they offer $371,000 with a note that they were willing to go higher if necessary in order to get the house. Later the agent said that they should raise their offer so they increased the bid to $378,000.

Why is the housing market so hot? Maybe it’s because the “Monster Money” is chasing real estate.

In 2008, Jeff Thredgold, former economist for Zion’s Bank said, “In my view, there is an enormous pool of very aggressive investment money around the globe (let’s call it Monster Money) that chases those assets with the greatest chance of a substantial gain. Much of this money is in the management hands of hedge funds, pension funds, Wall Street and global commercial banks and investment firms, insurance companies, and sovereign wealth funds.”

Where does the Monster Money come from? As I wrote in a previous article for this newspaper, “Huge profits are being made, legally and illegally. The money gained has to go somewhere. Money managers are charged with the task of increasing the already overflowing coffers of the obscenely rich. Their job is to find a place to park the money where it will grow. So, the money managers chase the next big thing.”

Pretty clearly, that thing right now is real estate. As we learned in 2008, the housing market can go down as well as up but right now it’s going up. Of course, individual stocks can make big gains and so can crypto currency, art and minerals like gold. Those markets require special knowledge but many people understand the housing market.

Who is your competition if you want to buy a house? According to the Wall Street Journal article, “If You Sell a House These Days, the Buyer Might Be a Pension Fund,” both institutional investors and wealthy individuals are buying up single family homes and competing with ordinary Americans.

Competition is driving up the prices of residential homes that might have been purchased by a young couple with a limited budget looking for a place to expand their family. John Burns, who owns a consulting business by the same name, says the Houston area has been a favorite of investors who are buying houses under $300,000 which are in districts thought to have good schools.

The houses that investors are buying for short-term rentals such as Airbnb are also driving up the prices because they are reducing the inventory of houses on the market. Roughly one of every five homes is purchased by someone who never moves in according to John Burns.

When the Wall Street Journal said that pension funds and others are grabbing properties, they didn’t necessarily mean they were buying those properties one at a time. For example, D.R. Horton Inc. built 124 houses in Conroe, Texas, and then rented them out. Sometime later, they sold all the houses to an online property investment firm called Fundrise LLC. According to the Journal, Horton made twice as much on the properties as they would have if they had sold them to individual buyers.

No one knows if housing prices are in a bubble that will someday burst or if the prices will be permanently elevated. Part of the push to buy is fueled by the current low interest rates on mortgages. No one knows if or when those rates will begin to rise.

Sadly, my relative and his family did not get the property they bid on. Someone offered $30,000 over the asking price and the homeowner took it. Was the buyer a pension fund or hedge fund? It’s not possible to know. But, their hunt for another house begins right now. The other choice is to continue renting which is not a terrible option but not what they want to do.

As they say, looking on the bright side, they are not homeless, just houseless.

Sherri Park

Sherri Park once had a real estate license in Utah and has bought houses to rent out in the past.

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