One thing BlackRock’s voracious acquisition of residential real estate across the country at rates far in excess of market listings indicates is that the econoclysm we’re early on in won’t be a repeat of 2008. Inflation isn’t transitory, it’s perennial. If the Fed had any intention of raising rates, BlackRock wouldn’t be paying 30% above asking for houses.
If the Fed raises rates, the housing bubble bursts. Large numbers of adjustable rate mortgage rate holders default. They’re only a small fraction of borrowers. What about all those homeowners who have locked in rates?
They’re still unable to sell for what they’re able to now. Homeowner A would like to sell his $300k house with a 3% mortgage rate to prospective buyer B. A’s monthly mortgage payment is $2,000. New mortgage origination rates are a lot higher now, though. B’s monthly payment on that $300k home, at 8%, is $3,000 a month. That’s a grand more than A is paying for the same property. For B to afford A’s life, the $300k house is going to have to sell for $200k so B can get the same $2,000 monthly payment A currently has. Though A has a great rate for the times, if his house will only sell for $200k now and prior to the price drop he only had $50k of equity in the house, he’s underwater on his fixed rate mortgage. There will be many such cases.
Is BlackRock or JP Morgan really going to pay $400k for A’s $300k house when monetary tightening will push the listing of that house down to $200k in a few years? If Big Finance knows the Fed isn’t going to fight inflation–and the incestuous nature of these the Fed and the banks that own it is legendary, so they know what the Fed has in mind–it also knows nominal prices of everything will go up. Prices will increase at accelerating rates. There will be an abundance of dollars and shortages of everything else, including residential real estate.
The important thing in that situation–the situation we’re in now, because the Fed not only won’t fight inflation, it can’t fight inflation–is to gobble up as much of the real estate market as possible, whatever the price. The money to buy is borrowed for free anyway.
Free money to acquire residential property and then rent that property out for? Sounds like a pretty nice perpetual income stream for asset management conglomerates to get their hands on. Those perpetual income streams are lucrative, very lucrative. Just ask Moderna, Johnson and Johnson, or Pfizer! And if it doesn’t pan out the way BlackRock would like it to, they’ll just get bailed out by their friends at the Fed and the Treasury.
You’ll own nothing and you’ll be happy. UBI will cover the subscriptions you need to live, albeit with nothing left over at the end of the month. It’s a new spin on an old arrangement. Get used to the term “neo-feudalism”. It’s going to come up a lot in the coming years.