Amir Sufi writes (with Atif Mian).
The strong house price rebound in high foreclosure-rate cities likely reflects these markets bouncing back after excessive price declines. But these foreclosed properties are not being bought by traditional owner-occupiers that plan on living in the home. Instead, they have been bought by investors in large numbers.
This is from a new blog spotted by Tyler Cowen, and both of the first two posts are worth reading in their entirety.
The picture that I get is of a pre-crisis economy in which middle- and lower-middle-income households thought they were doing well in the housing market. Then their house prices collapsed. Vulture investors swooped in to buy. Meanwhile, the government bailed out big banks and the stock market boomed. Some folks will credit the Fed for the latter. I don’t, but that is a bit beside the point here.
Net this all out–the sucker bets on housing by the non-rich, followed by big gains by wealthier folks in stocks and in foreclosed houses, and you get a picture of a huge regressive wealth transfer engineered in Washington. Carried out primarily by those who profess to be outraged by inequality.
Maybe that describes some cases, but many of the ‘sucker bets’ were made by people who had no such wealth to be transferred in the first place. Someone who ‘bought’ a house at 105 LTV using a pay-option ARM, lived in the house for a while, and then later got foreclosed on did not have their ‘wealth’ transferred away from them. It’s the opposite: they were handed a free place to live above their means for a while. Wealth was transferred TO them.
The wealth was transferred from the pensioners who implicitly invested in that house, and from taxpayers to the extent that bailouts took place. If there was a transfer it was from the middle to the upper (and a little bit to the lower), not from the lower to the upper. Indeed, how could it have been otherwise?
Or from upper taxpayer to upper investor, after all they pay most of the taxes anyway, right? The middle may have thought they were wealthier and been induced to take on more debt and end up with more taxes someday.
Wealth was also transferred from wealthy (and middle class) stockholders of banks who had a large number of their loans closed out with short-sales….to rich investors of foreclosed properties. An additional class of beneficiaries is retired people with cash who bought the foreclosures before the hedge funds moved in. (There were many of these in Atlanta – a particularly hard hit city)
However….Crimsonic is spot-on.
It’s like a 19th century bank rope-a-dope to steal farmland. Progress!
I think if owned two banks I might not even need one of them to be bailed out.
There is also the strong probability that much of the so-called “wealth” (even if the anomaly “transferred”) was only a chimera of prices of assets without regard to their productivity or relative utility.
Prices of assets, other than those based on their productivity (the ability to sustain consumption and add to surplus) and utility relative to scarcity, substitution and obsolescence, do not measure, and are not, wealth.
Sorry for the error:
should have read: (even if nominally “transferred”)