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Interest rates are record lows -- Wall Street investors are cashing in the flow of cheap money has private equity in particular.
Betting big on the housing market over the past year institutional investors -- up to -- up 55000 homes nationwide.
That is according to Reuters and that is helping drive up home prices for every one.
But is it creating a bubble that's a question -- -- -- It's for Thornburgh founding partner at beacon economics -- -- John lake as senior portfolio manager.
At leader capital gentlemen thanks for joining me crisper the story we laid out is that true is that what you see happening because this -- become a theme there's been people coming on the show all week.
Saying that this is what's going on around -- hundred UCF.
Yet no not at all look as and take this from a guy who is screaming bubble at the top of his lungs in 2005 and 2006.
Where we are today.
Is if anything what I would call reversed bubble if you look at levels of affordability today they've never been better you look at the price of a house compared -- -- Compared to the cost of of rankings when you control for today's interest rates Holmes had never been more affordable.
And the reason prices are starting to go up is because investors and some first time buyers.
Are looking at this understanding the arbitrage number I'm going to take -- so doesn't Charlotte you have -- you know what I -- Arab.
Private equity and investors are getting involved you just say it's not creating a bubble just to be clear up we have been out yet exactly -- -- -- that -- getting involved sort.
Our our our investors getting involved here and you think they're creating a bubble do you see evidence of this.
Leo we we do we think that this is really -- first time Q4 you know -- you know the private equity.
Players have really come in big into the real estate market and of the number 55000 those quarters I think it's a lot higher than that -- -- It's higher than that you I think it I think that raiders went low on -- Well look I mean in Las Vegas alone it's 10%.
You know if you got five million starts -- -- -- -- 500000.
So I think it it is a serious bubble and frankly I don't think it's a good risk reward asset.
I mean just take -- -- it's really really you know just report a thousand bucks a month.
By two or two or 40000 our house -- -- -- 6%.
They -- -- -- syntax -- I don't get it but.
You know look they they got to make fees and they got invest that money and I think that it's causing some problems I think the I can watch out what what John what are the problems that it actually creates.
Well -- Taylor creates it creates -- we call a crowded trade any crowded trade always ends badly whether it's apple.
Whether it's the federal government buying you know 86 billion dollars of mortgage backed securities -- month it doesn't matter.
And when the Fed steps away and interest rates move up you're gonna see all those institutional players.
Dump those houses on the market and it's just another bubble that's gonna happen and it is a crowded trade -- -- Chris is that eventuality because that's the argument a lot of people are now and then it and now they have but the places where you can buy a house for 240000.
You're renting that house up for a lot -- -- thousand dollars -- place you rent that house -- -- thousand dollars.
The price of homes like a 120000.
Dollars some -- -- where those citizens were taken from.
But there are completely selective the cap breaks I hear about these type investments are in -- eight to nine tonight even attend a full range.
It's a great investment that's -- taking advantage of it's as simple as that.
Now in as much his as the investment guys are moving and again there's a historic global arbitrage.
My personal preference is that the regulators would back off and allow sort of middle class folks to get out there are borrow by those homes take advantage of that cabinet parts and they are out but if you're an individual person to have your giant private equity front.
I absolutely shame that they're getting take advantage of this.
Let me ask you it is good for a lot of homeowners at least I mean 88 -- marks a bottom at least if large vultures come in to sort of clean out what's gone on it does raise overall prices is an -- for homeowners are underwater on their mortgages.
You you absolutely you -- a percent hang on me you can make an argument short term but but what you what you have is.
-- you have aim a huge amount of renters not homeowners.
Homeowners cut their grass on the weekend picks up their -- they take care of the house -- owners.
When you -- when you shift you know a large piece of that market over to.
A rental market that guy and -- you is is renting he's not owning -- in the long run that that will deteriorate your prime value.
Although it's better than having an empty foreclosed house next -- -- -- -- what you're saying about the -- -- the -- gentlemen good debate thanks for coming on thanks for having me.
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