There’s not a whole lot of disagreement that another bubble is going to burst soon. The only debate is what “soon” means.
The catalyst that brings on the next round of financial calamity may turn out to be a close relative of the catalyst that brought on the last financial calamity – housing.
It seems that institutional investors – many of whom have appeared out of nowhere, have purchased more than 200,000 foreclosed homes nationwide. In fact, their appetite is so voracious in some cases – that they own entire blocks; and have driven prices way up in the process. They fix them up – and rent them out to many of the same people who can no longer afford to own them.
Did you catch that number – 200,000 homes? That’s about the number of single family homes in the entire state of Wyoming.
Ominously, they’re now bundling homes and selling notes against them – telling the buyers that the notes are secured by hard assets – the homes themselves.
But remember – much of the “value” of that collateral is a function of the artificial prices their race to buy homes has created. It’s not real. They’re also basing the positive cash flow from rental income on the low interest rate mortgages they’ve been able to secure to purchase and improve them.
Four big security offerings have been sold so far – and the market is sucking them up at a rate of about $1.5 trillion a year. Who’s buying them? The same institutions that bought mortgage-backed securities that started the melt-down in 2008. And $1.5 trillion is more than enough to trigger a full-scale economic collapse.
This one however, could come with another potential side-effect. If these institutions decided they needed to pull the rip-cord and fire sale properties at some point in the future – home values would plummet – leaving all of us non-institutional homeowners in the neighborhood – S.O.L.
Who know when – who knows what will be the proverbial straw – but that popping sound could come any time – and there are plenty of half-baked trigger points that could bring the house of cards down – including houses themselves.