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Income Inequality Changes Housing Market

Income inequality is putting more and more houses into the hands of the wealthy 1 or 2 percent, raising prices and making it more difficult for regular people to buy a house.  Stories in the Washington Post and the New York Times document this phenomenon.  The big investors buying the homes are counting on regular people not being able to buy and having to rent the homes the investors are buying.  The New York Times says that the investors are taking a risk, because renting a large number of single family houses is a new undertaking that is difficult to manage.  The investors say that computer technology will allow them to keep up with the numerous records, repairs, etc., that have to be kept for each house.

The Washington Post says that in the formerly depressed Florida market, big investors are buying as much as 70% of the houses sold, perhaps inflating the figures indicating a revival of the housing market.  These are houses that had been owned by individuals until they were foreclosed.  Now they will be rental units being rented by the rich to regular people, who used to own their homes.  The Washington Post says the percentage of Americans owning their home has fallen from 69.2% to  65.4% since 2004.

The attraction for big investors is that very few assets these days pay any significant return.  Bond and stock yields are low and the risk is relatively high for the low return of 1 or 2%.  Buying cheap, foreclosed properties that can yield an 8% return quickly is inviting.

Both articles point out the risks for investors if there is another housing downturn, but the problem with income inequality is that for the rich, an investment that turns sour is not the end of the world, while for a regular person, losing his only home to foreclosure is something like the end of the world.

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