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The housing market
American Middle Class

The Middle Class Is Being Priced out-of-the Housing Market

The housing market is booming.  Sales of new homes skyrocketed to 4.8 percent in August, which is the fastest pace since 2006.  Private equity firms are going to the suburbs and buying single-family homes, then rent them out.  As a result, the middle class is being priced out of the market.

The Financial Crisis of 2008 gave birth to the single-family home rental industry.  At the lowest point of the subprime mortgage crisis, companies such as American Homes 4 Rent, Blackrock, and Invitation Homes gobbled up thousands of distressed and foreclosed single-family homes and turned them into rental properties.  Sometimes they event rent the houses back to former-owners in sale-leaseback transactions.  

A decade-plus after the birth of the industry, Invitation Homes and American Homes 4 Rent are big publicly traded companies, with $15.46 and $8.75 billion market capitalization, respectively.

Over the past six months, millions of Americans lost their job, and mortgage lenders tightened lending standards.  The pandemic-induced economic downturn should have put some stress on the housing market, but it has been unexpectedly resilient.  

Wall Street firms, not the middle class, are the benefactors of the housing market, dizzying growth.

The Middle Class is Priced out-of-the Housing Market.

The companies mentioned above and many more continue to buy single-family homes to turn into rentals. Their business model creates a historic housing supply shortage, which pushes house prices up and up.  

For example,  Invitation Homes currently has 224 single-family homes available for rent in South Florida. One of the houses available for rent in Miami is a 2,200 square feet home with three bedrooms and two bathrooms for $3,469. 

South Florida, along with multiple other metros in the country, is experiencing a severe housing affordability crisis.

According to the Zillow, the median home value of single-family homes and condos in the United States ins $256,663. Home values have gone up 5.1% over the past year.

Even though mortgage rates are at their lowest levels in history, middle-class buyers can’t buy homes, especially first-time homebuyers.  As of this writing, the benchmark 30-year fixed mortgage rate is 3.090% with an APR of 3.300%. The average 15-year fixed mortgage rate is 2.550%, with an APR of 2.770%.   However, the supply shortage is preventing middle-class buyers from taking advantage of the cheap mortgage.

In a regular housing economy, a young couple would buy a start-up home, move into a bigger one when they start making more money, and then downgrade for a smaller home at retirement. That process continues to add more supply to the housing market.

The single-family home rental industry stops that healthy economic process because they buy and hoard single-family homes.


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