The housing recovery is a myth
Recent numbers showing improvements and strong economic recovery in the housing market do not necessarily mean that homeowners are enjoying the same home ownership experiences that they were in the past. Foreclosure rates are still high, and even though sales prices are going up, which would be optimal for a home owner, more often than not, it is a private equity firm who now owns the home instead of an owner occupant.
Yes, more houses are being sold than in recent years, but what homeowners are starting to see is that when a house is foreclosed on, an equity firm buys it via a short sale or for a substantially lower amount than list price, and then offers it to the previous owner as a rental. Therefore, the homeowner loses out on the ability to own the house and begins paying rent instead, which can be disheartening for those who aspire to own their own house.
How does this happen?
In non-judicial foreclosure states like Georgia, equity firms often get significant discounts for buying properties at an auction with an all cash offer. Because these decreased prices are offered at auctions only, and are not usually accessible to the general public, typical home buyers do not have the opportunity to buy at a price below the mortgage principal balance, which would allow them to make headway on their mortgage if they were behind on payments.
In the event that home buyers are able to make a competitive bid against that of a firm’s, it can be difficult to match up to the allure of an equity firm’s all cash offer, and previous home owners end out losing.
Beware of the talking heads
So while the numbers indicate a recovery in the housing market, they don’t necessarily show that a larger percentage of home ownership is starting to shift to equity firms. In order to keep ownership, it is even more imperative for home owners to satisfy their mortgage obligations in order to avoid foreclosure and then facing the possibility of only being able to rent the home that they were once working towards paying off.
Private equity firms are not the bad guys here, and there is no reason to call for the deck to be reshuffled as America is a capitalist society, but analysts celebrating that housing has recovered tend to overlook this substantial obstacle to homeownership and housing recovery.
Housing activist Shabnam Bashiri said, “In the wake of one of the greatest financial disasters in modern times, you’d think we’d have learned our lesson. Like they say, fool me once, shame on you. Fool me twice, shame on me. Maybe what we need this time around are solutions that help people find long-term housing stability, instead of chasing short-term fixes that will land us right back where we started.”