If you remember back to the aftermath of great housing crisis in 2008, property values fell. For generations in many communities housing prices rose and the overall majority of mortgages were paid back. Housing prices were rising, the need for mortgages to securitize lead to a many mortgages being given out that were based on the hope that house prices were rise and the lenders would be protected from those that could not afford their mortgages. Many started with a low rate but after a year jumped to above 10%. Not surprising the number of mortgages defaulted rose which then sent the securitized bonds lower which put more houses on the market which lower prices and the cycle continued.

Time was a partial solution, with very low construction of new homes, the communities absorbed some of the houses on the markets. The other solution was for hedge funds to buy the homes and rent them out. Eventually property prices leveled off and rose which increased the value and safety to the hedge funds. The hedge funds for their rental housing could raise the rents to match and increase inflation or for early funds, they made a great deal of money.

In an article by Josh Boak of the Associated Press, President Trump has been losing popularity due to affordability and he has chosen to offer solutions. In a press release the President said he wants to block large institutional investors from buying homes. The rationale, it would make it easier for younger families to buy their first homes.

The President has floated other ideas such as increasing the 30 year mortgage to 50 years to lower monthly payments. Technically monthly payments fall, but the interest someone has to pay doubles, which puts a damper on the wealth or the home equity. (we have seen the same solution offered by car companies and loans for car loans have increased from 5 years to 8 years).

The American Enterprise Institute did an analysis of investors owning more than 100 properties. The number is 4.2% of housing stock in Atlanta; 2.6% in Dallas and 2.6% in Houston. The properties tend to concentrate in lower- and middle-income communities.

Goldman Sachs released a report that says a shortage of new construction is a problem. To relieve the problem of cost pressures 3 to 4 million homes would be needed to be built.

Linking to dividend paying stocks, in the days gone past, when there was a change in administration the Republicans tended, not always but tended to be believe in less regulation in the marketplace. Democrats tended to believe in more. Constraining ownership when the ownership does not have enough to influence prices can be good politics but lousy business. If you wish to talk about affordability, you also have to talk about incomes and expectations. Remembering prior to the 1950’s, the majority of people were renters, the government introduced the GI bill and subsidized mortgages and suburbs developed.

There are more questions than answers, till the next time – to raising questions.