Zillow’s Everything-Must-Go Sale Affects All Homebuyers
Recently it was announced that Zillow would end its home-buying business and will instead look to dump more than 18,000 homes from its portfolio due to their exuberant, over-extended home purchasing program. On the surface, this bump in our housing inventory across the country seems a positive thing for the average homebuyer, especially in markets with surging prices and limited properties. But here’s the rub: Bloomberg reports that Zillow is looking to sell its inventory to “institutional investors” (aka Wall Street firms) to a tune of $2.8B, leaving John and/or Jane Q Homebuyer and their American Dream out of luck.
To put some things into perspective, if the entire population of Germany wanted to move to Beijing tomorrow they would be able to choose from nearly 30 million unsold properties that lay vacant, which could house nearly 80 million people. If 75% of the United States also chose to move there along with the Germans, there would be an additional 100 million properties that are most likely owned but continue to lay unoccupied and available to house over 260 million people. Economists across the globe have studied these areas for years and have labeled them China’s “Ghost Towns.”
And yet recent articles highlight the economic struggles in China’s housing market that stem from China’s largest real estate holding company, named Evergrande. It seems they bit off more than they could chew and have found themselves in debt. Does this sound familiar? The narrative hasn’t seemed to change much since the economic collapse created by Wall Street in 2008. During this global economic crisis, the standard messaging was quite clear: The homeowners were at fault and bit off more home than they could afford. But we quickly found out in 2008 that it was not as simple as that, and in many cases, it just wasn’t true.
Blackrock, the world’s largest asset manager, with over $9.5T in assets under management is among the largest buyers of Evergrande debt. Blackrock has added 31.3 million notes of Evergrande’s debt between January and August of 2021. This seems eerily similar to the 2008 collapse of the U.S. Investment bank, Lehman Brothers. One difference between the Evergrande issue and the Lehman situation was that the People’s Bank of China, in a rare move, warned Evergrande executives in August that they must reduce their debt risks and prioritize the company’s stability. In the U.S, the Wall Street corporations claimed the economic collapse of 2008 to be from homebuyer error, and the government bailed out the culprits of the crime by the trillions of dollars. Perhaps the “institutional investor” that Zillow is looking for can be found in Blackrock, known for buying large volumes of home inventory and leaving them vacant in order to drive up the home prices and rents in local communities.
As dire as the Evergrande drama to default might be, it is small in relation to the $8.2T of local government financing that the Chinese government has taken on. It seems for the past few decades of China’s maintaining their unprecedented annual 15%+ GDP growth rates they have incentivized local governments to tackle improvements and infrastructure. This investment strategy by the Chinese government was taken on after the subprime crisis in order for their country to avoid the fallout of the global financial crisis. In doing so, they have created ghost towns en masse in order to keep their shadow economic engines running. This rather unregulated and opaque means of economics has subsequently led China to welcome global investment firms such as Blackrock, JP Morgan, UBS and others to rush in and get some stale investments for a steal.
I am keeping my eyes on a current lawsuit happening in New York Southern District Court where Arkansas Teacher Retirement, Police and Fire Retirement System, Bakers and Teamsters Pensions, Employee’s Retirement, and numerous other pensions and retirement funds from across the country are suing Goldman Sachs, Bank of America, Citigroup, JPMorgan, RBS, UBS, Credit Suisse and others for allegedly conspiring to manipulate the $14T market for securities where their investments were housed.
Where am I going with all of this? I clearly see an ongoing pattern of corporate market manipulation that continues to go unregulated on a global scale. In doing so, we find entire newly constructed towns in China with no one living there. We find national housing prices artificially inflated by the institutional investment firms to the extent of a business model built on conflict of interests with no oversight or regulation to such overt activity. We find the financial institutions that are tasked to monitor and manage our economic and monetary engines only to seemingly deceive, defraud and manipulate due to lack of regulation brought on and perpetuated by both parties since the Reagan and Clinton administrations. We find unprecedented home prices due to hedge fund and corporate investment firms’ manipulation of the single home housing markets, leaving the average homebuyer left out to dry. We find increasing homelessness across the country due to the continued rising costs of housing. When communities are left with only corporate or hedge fund landlords we see examples of the lack of attention to community and property due to out-of-state ownership of property.
Since the repeal of The Glass-Steagall Act, in 1999 during the Clinton administration, it is more than clear that we must bring back financial regulation in order to maintain control of our economy. Without clear oversight and transparency, we will only continue to watch the numbers of independent homeownership continue to fall. Without personal homeownership we will continue to watch the national homelessness crisis continue, leading to economic blight across the board and across the country. When we dissect how this begins to self-perpetuate, it seems easy to see where the holes in the fabric of our communities have been taken over by hedge funds and institutional investment firms rather than our neighbors and Main Street.
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Douglas J. Boggs is a CEO, real estate developer/investor, podcaster, and the author of the acclaimed book “Quantum of Justice: The Fraud of Foreclosure and the Illegal Securitization of Notes by Wall Street.” His blog can be found at douglasjboggs.substack.com. He experiments with off-grid living.
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