> We really don't have any direct, past precedent for this type of situation
Yeah, we do. Massive housing speculation in the mid-2000s.
> The fact that Zillow failed on their initial attempt does not imply that this can't work
I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.
This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.
The boom and bust cycle reflects basic human psychology of fear and greed.
Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.
I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.
Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.
Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.
But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Real estate speculation has likely been around for thousands of years; it’s certainly not new. But, do you see any difference between A. individuals in the mid-2000s speculating on real estate based on individual whims and taking out mortgages they should not and B. large corporations with access to massive datasets previously unavailable, teams of PhDs trained to work on this, equipped with game-changing modeling capabilities that were computationally infeasible until the past decade, along with access to massive amounts of capital? In my opinion, the former case seems less of a concern than the latter.
Also, maybe I’m dense but I’m not able to see any relevancy to GME at all.
For the entire US yes. For new york city, that's just under ~3% of total sales. Given how fundamentally illiquid residential housing market is, thats more than enough to push prices up/down as the player sees fit.
I bet it's even an even bigger part of the pie if you exclude $10m+ homes. My hunch is that the middle and low end of the market is more attractive because they are easier to rent.
Someone in a related thread here on HN yesterday said that at some recent point in time, US$200M would have bought every piece of residential real estate for sale in Boston (proper). Didn't try to verify if that was true.
I agree that 2.6b is chump change relative to the US housing market. In fact, it’s not a large hedge fund, regardless of what they’re trading. I think the real concern here is if this model proves to be profitable and that 3b increases by several orders of magnitude across a much larger set of firms and funds. I’m not saying that will happen, but that is an alarming potentiality.
A sounds like it would lead to increased chances of people overpaying and overextending themselves, and B sounds like it would lead to more accurate pricing.
That’s one of the talking points parroted by HFT firm representatives defending their business. There’s a lot of research on it as well. I bet successful real estate firms will use that same argument. I personally have a hard time believing this will benefit the average consumer buying a home.
You are right that the pricing is more accurate. But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates). The calculations used are entirely different and so is the capital available. In the world without this type of behavior, that pricing difference could be captured by an actual homeowner over the life of their mortgage.
It's another thing we are seeing "optimized" right in front of us. Meanwhile, housing, education, and healthcare get more expensive for actual humans.
> But it is more accurate for a company trying to increase their own revenue, not someone trying to own and occupy a house (most Americans, based on home ownership rates).
Also for the house seller (prior to the company), who is getting paid a more accurate, higher price.
And a price is accurate all the same for buyer and seller, since there exists a range with the minimum price the seller wants to receive and a maximum price the buyer wants to pay. The smaller this range, the more accurate the price.
With more data and more accurate projections, it may be possible for current owners to capture more of the gain that may have happened down the road.
I agree B) isn't being employed by only malicious companies. We're talking about a huge market and tons of competition. It would take a lot of effort to keep honest companies from making money also bringing prices down if there was artificial price inflation.
I've definitely not studied the market extensively, but it seems rather intuitive to me that if you artificially give everyone access to the best loans in any market, you'll see prices continue to inflate until everyone in the housing market is educated and capable on benefiting from the subsidized loans.
Scenario B and A are more similar than you acknowledge. Both are fueled by low cost capital driving prices to unsustainable levels. Scenario B will be a problem too if/when interest rates rise and companies have insufficient cash flow from rents to pay the new debt service. In fact, scenario B may result in a deeper crash, since selling will be swift and by many actors at the same time since they are using similar valuation models. Scenario A was predominately driven by actual homeowners whom are more reluctant to sell in a down market.
> companies have insufficient cash flow from rents to pay the new debt service.
If they are pouring their own capital into purchases, why would there be any debt? Are the entities (companies) in scenario B actually borrowing money?
Given the current interest rate market, I think it's safe to assume they are borrowing money to purchase homes. They aren't taking out individual mortgages but I would be shocked to learn that they aren't borrowing millions through other forms of financing and then paying "cash" for homes.
Also not leveraging purchases would be considered financial management malpractice unfortunately and likely result in a hostile takeover of the company or at the least a change in management. This is a major reason companies get into trouble with debt during times of increased interest rates; proper unwinding of debt and sale of assets near the top is key when playing with leverage.
I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
Why use your own money when you can use other people's money? Apple, MSFT, Google, etc. All these companies have massive piles of cash on hand yet continue to finance operations.
Irrespective of that, I agree that even if Zillow fails here, it doesn't bode well for the future of the RE market.
> But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.
Possibly. Real estate is different than most other markets for a few reasons. Favorable tax treatment, sheer market size, high barriers to entry, and being at the bottom of the hierarchy of needs.
I'm worried if this isn't the inevitable path of concentrated wealth accumulation. Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
> Stocks have grown too over-valued? Move to housing, a gigantic market that people require to survive.
This is kinda what happened in the 00's housing bubble. Tech crashed and people looked at housing as the next big investment. It feels like we just have groups of people going from bubble to bubble.
Like the other responder, I don't think the 00s and this cycle have much to do with each other. 00s was lots of people who couldn't afford a home being provided mortgages by banks, and it falling.
This is presumably a number of well-financed institutions buying up property to hold or rent.
Now, perhaps you're correct that it isn't as bad as it seemed, since Zillow is selling the homes rather than getting into the rental business, but even the header of the article says they are seeking "institutional investors".
I also agree that cities should be for those who live in them, and that land is a different type of asset from most others (again, like another responder mentioned).
The more I type the more I think we're on the same page, but you seem to think everyone is focused "just on Zillow" while I am thinking more about the long-term opportunities for trillion-dollar megafunds to gain a monopoly on living space and destroying the ability of families to own property in America's cities.
Nobody is saying (I think!) that the fundamentals are strong, or that old rules don't apply.
What's being suggested is that the influx of large scale corporate purchasing in the residential real estate market is different, and that because of the old rules, this could be a problem.
> also GME is over $200 currently, when it was $10 a year ago
And they got there by running a sustainable and profitable business? No, they got there because Reddit decided to play their own little game of pump&dump.
Which is yet another blatant example of how decoupled the stock market is from the actual real world economy.
Actually the game was buy and hold ( diamond hands ), and only because they saw an enormous amount of shorts outstanding, so much so that a squeeze was all but guaranteed.
> Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold.
Everyone who got into $GME after the first spike knows that the value will tank some time, they are in it simply for the lulz - to this day, short sellers are accumulating losses, and given how long the price has stood up way over anything supported by fundamentals there must have been dozens of billions of dollars in value lost for them.
Obviously some are in $GME in the vain-ish hope of a second short squeeze event... but that's just gambling.
> Having landlords is fine as long as those landlords themselves are residents of the same city.
I suspect this would simply lead to property owners having a nominal “registered agent” in the city as the “owner” but all control and profit flows to the real owners.
Moreover, think about blighted cities. If a company is willing to come in to such a city and build some really nice affordable apartments that would improve the city for everyone, it seems like an undue burden to force them to live in that city as well. Your proposal could lead to shitty places to live staying shitty for a long time.
Yeah, we do. Massive housing speculation in the mid-2000s.
> The fact that Zillow failed on their initial attempt does not imply that this can't work
I'm reminded of Gamestop here. Around the time $GME first spiked and then fell you saw lots of people trying to encourage everyone to hold. What this ignored is that someone would be left holding the bag and the long interest holders knew it so it was a question of not being left holding the bag.
This is classic Prisoner's Dilemma, basic human nature (ie to act in self interest) and exactly why markets work long term.
The boom and bust cycle reflects basic human psychology of fear and greed.
Asset bubbles aren't new. Attempting to corner or even just manipulating markets isn't new. Ultimately these things always revert to mean. Sometimes you can predict the reason. Often you can't.
I personally favour fairly radical and progressive real estate reform. This includes (much) higher property taxes for non-resident owners, treating owners as tax residents and thus taxing their income, ending special treatment for real estate assets in asset reporting and withholding taxes at source on real estate income.
Cities should be for those that live in them, first and foremost. Having landlords is fine as long as those landlords themselves are residents of the same city. Residential property shouldn't be for investment funds or oligarchs hiding money from governments.
Concentrating on the likes of Zillow however is largely unnecessary and a diversion. The focus should be on the game not the players.
But I also firmly believe that the prisoner's dilemma and human psychology will limit the impact of institutional real estate buying just as in any other market.