house prices US Q2 2013After Wall Street crashed US housing, now buying on the cheap. The US housing market is exploding. It currently is the hottest market and the key sector that is growing the US economy – and perhaps the world as the emerging markets falter and the EU still mired in recession. Can it last or is it yet another bubble?

The gains in some major markets were substantial – check out the thumbnail chart. Phoenix rose 22.5% year-on-year. Las Vegas increased 20.6%. San Francisco was up 22.2%. (New York, at 2.6%, rose the least, but it also declined a lot less during the worst years.) And don’t forget, we’ve seen similar dynamics in other gauges of home prices recently. Just last week the FHFA house price index posted its biggest-ever month-on-month increase. Where are all these buyers coming from?

The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago. As interest rates begin to rise and prices of homes begin to shoot up from depressed levels – the stampede is on, before housing gets too expensive again. So who are these buyers?

Blackstone, which helped define a period of Wall Street hyper-wealth, has bought some 26,000 homes in nine states. Colony Capital, a Los Angeles-based investment firm, is spending $250 million each month and already owns 10,000 properties. With little fanfare, these and other financial companies have become significant landlords on Main Street. Most of the firms are renting out the homes, with the possibility of unloading them at a profit when prices rise far enough. The internet is littered with stories of rising rents – click here for an example – Denver metro apartment rents rise to all-time high in Q1 2013.

So yes after Wall Street crashed the economy in 2008 and watched the economy fall off the cliff, they are now busy being vultures in the housing sector. This means that middle class America, who lost their homes and good paying jobs, will now have to face a job market that is recovering ever so slowly with lower paying jobs and begin to pay high rents to their new Wall Street landlords. So as prices do recover, the benefits of this recover will go to the landlords obviously not the renters. Just another way the rich get richer and the poor get poorer and the middle class in America becomes an extinct species. Who cares?

For sure this housing boom will add some to the US GDP. But frankly it’s not been that impressive so far. Recent data showed that the US grew at an annual rate of 1.8 percent in the first quarter of 2013, well below expectations of a 2.4 percent annual rate. Markets got excited as more Fed easy money to follow? Longer term this means any economic recovery in the US will be limited, as it will continue down the road of more credit and as it cannibalizes its markets with an ever shrinking middle class.

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Blue Point Trading Market View – June 28, 2013

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