Wall Street sees opportunity in cities that suffered the most from the recession.
Large investment firms have been purchasing cheap properties, often pushing out local buyers and stirring fears about a potential housing crash.
Since last year, the billions of dollars spent by these companies have inflated real estate prices, though it’s too soon to tell whether there has been an actual rise in demand, Suzanne Mistretta, an analyst at Fitch Ratings, told The New York Times.
Wall Street’s recent investments have turned depressed areas into top markets. Nevada, California and Arizona—some of the hardest hit by the housing collapse— are leading among the states in rising home prices. Nationwide, housing prices increased 12.1% in April from a year earlier, according to real estate data provider CoreLogic. That’s the biggest gain in U.S. home prices since February 2006.
The Next Bubble?
Some worry the uptick is merely creating another housing bubble—a rapid and unsustainable rise in real estate value followed by a sudden drop-off in prices and sales. Wall Street had a hand in creating the last national housing debacle by providing risky loans to people who weren’t financially stable enough to buy homes.
But fears that Wall Street is set to cause another housing market crash if it decides to stop buying are largely unfounded, according to the Times. These companies, such as Colony Capital and Blackstone, are not burdened by as much debt as those firms involved in the 2008 housing crisis. Such companies’ buying is also isolated enough that it wouldn’t create a collapse on the same scale as the last crisis.
Plus, there’s a bright side to this trend—investment firms are buying and renovating decrepit properties that would otherwise be left empty. That creates hope for more economic rejuvenation in those areas.