Above the Fold

Wall Street’s Evolving Interest in Real Estate

Mortgage-backed securities were at the core of the subprime mortgage crisis, which eventually morphed into the Great Recession. The hedge funds, banks and other financial institutions that purchased and sold these securities, paired with credit-default swaps, were doomed to fail if homebuyers, especially those with adjustable-rate mortgages, defaulted on their payments in what was a rising rate environment. 

After the crash, some of these same institutional investors came in and bought large swaths of homes to be either resold or more commonly, rented back to American consumers. Some sources say that from 2011 to 2017 alone, investors snapped up $40 billion worth of homes across the nation, adding 6.5 million renter-occupied homes. The fact that long-term, well-healed investors own so much real estate in America is likely contributing to the faster-than-expected rise in prices as these investors continue to collect record rent rates and have little desire to sell. 

And according to the Wall Street Journal, global funds and other institutional investors are now going after the world’s vacation-rental market. Short-term rentals in hot destinations have seen a huge rise in demand, and investors want to capitalize. One firm, Saluda Grade, is launching a partnership with short-term-rental operator AvantStay Inc. to buy about $500 million worth of homes. There are several others targeting a similar strategy as short-term rentals can yield much more than longer-term leases; especially in tourist areas with high demand. 

Three Things 

1. Hyper-Freight Becomes Virgin’s New Focus – Back in 2017, U.S.-based Virgin Hyperloop expected to see working hyperloops around the world by 2020. Hyperloops are essentially vacuum-sealed tubes that transport people and stuff at a high rate of speed. Unfortunately, Virgin Hyperloop has failed to attract key personnel and funding from investors. The company announced it will lay off half its staff and focus now on moving cargo only, as there are far less regulatory and safety hurdles. 
2. Inflation, Competition Changing Corporate Comp Trends – The extraordinarily tight labor market has already forced many businesses to increase pay rates, offer signing bonuses, increase benefits and/or more flexible work schedules. Despite these huge wins for employees across the nation, some companies are taking an even bigger step by offering more frequent pay reviews, even quarterly. This trend still remains low, but a growing number of corporations surveyed by consulting firm Mercer said that they may explore more-frequent reassessments of pay to keep talent and stay on pace with inflation. 
3. Why Are Americans So Unhappy? – Aside from the recent correction in stocks, the American economy is doing quite well. Home prices are at record levels, wages are up, jobs abound and the country is emerging from a pandemic. History has shown that society is happiest when the economy is expanding rapidly, but 2022 is the exception. A recent Gallup poll revealed that consumers feel as bad as they did during the Great Recession in 2009. The main causes of this anxiety are inflation, product shortages and a general fear around future economic stability. 

Did You Know? 

Great Recession’s Housing Toll

Studies revealed that over 6 million American households lost their homes during the Great Recession. Back in 2009, the average household contained 2.57 people, meaning that an estimated 15.42 million people were displaced. That’s more people than the entire populations (2020) of New York City, Chicago and Los Angeles combined.