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Housing recovery is a myth thanks to private equity firms

The housing recovery is a myth and analysts celebrating gains are overlooking and often ignoring the long term role that private equity firms play.



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.

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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.”

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.



  1. Dustin McClure

    July 18, 2013 at 12:41 pm

    Does anyone proofread these articles before they are posted? Why would it make sense for a bank to even consider a bidder that was behind on payments to rebid on a home? How would they qualify for a mortgage if they are behind on payments? Why would this be considered when you have a cash buyer that can close on hundreds of properties at a time within 10-20 days of bidding?

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