The Federal Reserve Bank of Dallas is warning about the increased
likelihood that the housing market could collapse.
Now. They're worried because it seems like for
the first time ever.
They realize that housing prices seem a little detached from
other economic fundamentals,
including the amount of money people are able to make the expenses that they have.
And I just think it's so fascinating that this has been going on for years and
years and now they're like, it looks like these homes might be overvalued,
what's at play here?
>> [LAUGH] >> Well,
we'll get into the details of what they're saying.
But I think it's also important to dig into what their proposed solutions are, or
at least what they're hinting at in regard to propose solutions.
They write our evidence points to abnormal US housing market behavior for
the first time since the boom of the early 2000s.
Let's pause I already have to pause, really for
the first time since the early 2000's.
Okay, these are the experts.
By the way, reasons for concern are clear in certain economic indicators,
which show signs that 2021 house prices appear increasingly out of
step with fundamentals.
Prices may be rising to a point that they call exuberance in which prices
become increasingly out of sync with the economic fundamentals.
Underpinning the market, the consequences of housing market exuberance can
include overpriced homes investments based on distorted expectations of returns.
And reduced economic growth and employment.
So what are the causes, like what would likely cause this bubble to burst?
And this is what I want you guys to focus on.
The cycle is interrupted when policymakers intervene, spurring investors
to become cautious and causing the flow of money into housing to dry up.
Let me read that again, causing the flow of money into houses to dry up.
This could cause a housing correction or possibly even a bust.
Now, there has already been a little bit of intervention recently by
the Federal Reserve.
What did the Federal Reserve do?
They agreed to finally increase interest rates because private equity firms,
financial institutions, major banks have been getting cheap money,
zero interest money from the Federal Reserve.
And what do they do with that money they take it and
they snatch up the limited inventory of homes on the market.
And while you might be a renter and you might not think that's such a big deal,
it translates into higher rental prices as well because they don't flip those homes.
What they end up doing is they keep the homes as rentals.
And they become these slumlords that get to charge higher rent and
people who get priced out of the market that maybe they were
interested in living in or have been living in for their entire lives.
They end up going to other parts of the country to rent.
And that drives up the rental prices in those areas as well.
It has a domino effect that's been incredibly destructive and
damaging to working Americans.
So they talk about investing and
how investors have actually been a huge component.
But they don't really talk about, hey, maybe there should be a policy that
prevents this type of speculation within the housing industry.
Maybe there needs to be a policy that prevents these investors from taking cheap
money from the Federal Reserve and then pouring it into the housing market.
They don't make that point.
They seem to focus more on the need to take a look at what kind of
intervention might happen on a governmental level and
how that could spur some sort of housing market collapse.
And let me just be clear about something.
Yes, there are many housing markets that are overvalued right now as a result of
this speculative behavior.
We'll talk about the possible correction in just a moment, but Faron so far,
I'm curious to hear what you have to say.
>> Well right now, you have investors buying 33% of the homes that are currently
being sold in the United States right now, 33% are going to investors.
Not to people who are, hey, let's, we got to buy a house.
We're starting a family.
We just got married or were retiring 33%.
A third of them are going to investors because they look at real estate,
not as we need a roof over our head, but as a money making opportunity.
And once you turn the housing market into a commodity like that,
that's when things always go haywire.
And of course, as you pointed out the same thing was happening in the early 2000s.
Everybody was gonna get into the house flipping business, right,
we're gonna buy these cheap properties, we're gonna dump $20,000 into it.
We're gonna sell them for 100,000 more than what we paid for it.
Boom, huge profit.
And it happened all over the place.
And that's actually a big part.
Maybe not the biggest part, obviously, but that's a huge part of what was
happening in the early 2000s that always gets overlooked.
All these up and coming house flippers and things like that.
We, we glorify it, we put reality shows on TV talking about how great this is and
what a great investment it can be for people.
And what they do is they price the market way above what anybody
in these areas can even afford.
At this point here in Florida, I actually found this out today,
we have 1.6 million vacant homes, 1.6 million homes sitting empty in this state.
And of course this comes at a time when we have rents increasing
throughout the state of Florida by 30 to 50% and
kind of harking back to what we talked about earlier what is our governor doing?
Is he talking about these economic problems?
Is he talking about the fact that we can't afford houses.
No, he's not, he's not talking about the rent going up 30%, he's talking about,
we got to prevent transgender women from playing in women's sports.
We've got to focus on these culture, war issues because our economy here in Florida
is going straight to hell and it's going there very, very quickly.
We are seeing job growth, but it's in the service industry where if you don't
get a tip, you're only making $2.13 per hour to roll silverware okay.
We are not doing well here.
And this is of course happening all over the country, but
it's because of the investors.
I mean that is a huge driver of what is happening now when they buy up these cheap
properties.
And then sell it back to the people who could have bought it at the cheaper price
for 25, 35, 50% more than what they just paid for
it a month ago because that's how fast they're turning them around here.
>> And also keep in mind that the one remaining area for
working Americans to build wealth in this country was the housing market.
And I'm not talking about engaging in the housing market as speculators,
but more importantly, purchasing a home that they wanna live in, right.
And then throughout decades, the value of that home goes up and
they build wealth that way.
Many people relied on that as, as their retirement plan, for
instance, and so that one remaining.
Facet of building wealth in America has been ripped away from people because of
course, the very individuals who are already incredibly privileged.
Already living affluent lives and people are already millionaires and
billionaires, they didn't have enough.
They had to do away with, by the way,
not just an avenue in which people build wealth, but more importantly,
do away with a basic necessity to survive, which is housing.
Again, it's not just impacting those who are looking to buy,
it's also impacting those who are looking to rent.
And to your point Faron, Florida has been one of the targets for
these massive financial institutions and equity firms, for instance, Tampa Florida.
Is where a lot of these investors are pouring in there,
buying up the single family homes.
And when you see them sitting empty, it's not because no one owns them.
More often than not, they're owned by these speculators, and
either they're using it as some sort of tax write off claiming that they're
taking a loss as a result of it sitting empty, or they end up renting it.
And the community changes as a result of that,
because there have been stories about, various neighborhoods,
mostly black and brown neighborhoods across the country.
Where most of the homes have now turned into rentals and
the corporations that are renting them out,
don't do the necessary vetting or don't keep up the property.
And so it ends up becoming a complete and utter disaster within the community and
people are upset about it, right.
People end up having parties, there's issues with violence and crime, but
they don't care.
You think the investors care about that as long as they're collecting their rent or
as long as they've got their tax write off, that's all they care about.
And one other thing I wanna mention, you talk about Ron DeSantis and
his failure to address this issue, he'll never address this issue.
This is not a priority for Republicans.
This is the type of corruption and greed that they love.
It's their bread and butter.
But I'm gonna say the same thing about Democrats,
both on a state level because we're experiencing this in California as well.
But more importantly, on a federal level, this isn't even on Joe Biden's radar.
I don't even hear anyone in Congress talking about this issue.
And this is a huge problem.
The Washington post, for instance, just reported that last year, investors bought
nearly one in seven homes sold in the nation's top metropolitan areas.
The most in two decades of record keeping, according to the Washington post analysis.
And I wanna look at this map real quick because it shows you charlotte,
charlotte is one of the major metropolitan areas where this is becoming more and
more of a problem.
And if you look at the darker the area on the map is,
the more speculative behavior you see in the housing market there.
So you're seeing huge chunks of charlotte being snatched up by these
investors who again, are just looking to hoard more wealth for themselves.
And it's absolutely sick behavior.
>> And we always see these Republicans telling people that are out of work,
just go get a job, contribute to society.
Now, why are you not saying this to people who just buy homes and
sell them as a that's not a job like that's not a thing that you should be able
to do here in the United States, like real estate investment.
I'm sorry, I just feel like that shouldn't be an industry that exists.
Housing should be a human right.
That is where we need to be.
And we need to start pushing the politicians who are willing to come out
and say that, but also do something about it, right.
We've seen too many times where they say something and maybe not follow through
with it, but we need that codified into law here in the United States.
If you wanna own rental properties down in sunny Florida or
anywhere along the beach, go ahead and do that.
As long as the needs of the communities are being met and
people who need houses can still get them.
If we have extra, go ahead, make your money off that.
I'm okay with that.
But at a time when we have rampant homelessness and
we have more empty homes than homeless people.
Not, okay, absolutely no excuse for this as a country, and
we need federal laws, like you said, federal,
to address this because the states aren't gonna do it, the states don't care.
This has to come from DC or it's not going to work.