Some of the very same conditions that led to the housing meltdown in 2007 are reappearing as big investors snatch up homes in depressed markets, creating a real estate bubble that could burst again.
Michael Marchillo, a plumber, has been trying and failing for months to buy a bigger home for his family here in Sin City. He was pre-qualified by a bank for a $130,000 mortgage, which a year ago would have landed a typical three-bedroom home in the area. No more. Now, the 36-year-old says, it's hard to compete with "greedy investors" who come to the table flush with cash for quick deals.
Local real-estate broker Fafie Moore says private-equity firms and hedge funds have largely "crowded out" local buyers like Marchillo. That's because the investment firms have broadened beyond their initial focus - buying homes at foreclosure auctions. Now, they are also bidding for homes listed by private owners and banks. In a sign of how freely the money is flowing, Moore notes around 60 percent of all sales are in cash these days.
Marchillo is on to something. The once-beleaguered Las Vegas housing market has been on fire since investment firms led by Blackstone Group LP, Colony Capital and American Homes 4 Rent began buying homes here some eight months ago, backed by $8 billion in investor cash to spend nationally.
These big investors and a handful of others have bought at least 55,000 single-family homes across the U.S. in the past year. In the Vegas area alone, they have accounted for at least 10 percent of the homes sold since January 2012, according to a Reuters analysis of housing transactions.
That added firepower helps explain why home prices in this metropolitan area of 2 million people are up 30 percent over a year ago, far more than the national average of 10 percent. Permits for new home construction are up 50 percent, twice the national average.
There they go again, playing roulette with our money. A collapse of one or two of these hedge funds if the market goes south will elicit "too big to fail" calls and the wheels will turn again to bail out the high rollers.
The same credit default swaps and derivatives sales in mortgage backed securities that led to the financial crisis are continuing. The so-called financial reform bill barely dealt with this opaque market so no one really knows how much risk there is right now.
But the conditions are ripe for another crisis because as we all know, what goes up must come down and eventiually, the market will correct itself. This time, let's let the casino players live with their choices rather than giving them a soft landing with taxpayer money.