I've been keeping an eye on the real estate market since the implosion of the last housing bubble, all the while shaking my head at the lengths government has gone to prop up prices and protect the banks. In doing so, a second housing bubble has been inflated, and when this one goes the feds will be powerless to prevent a hard landing...and we are in for a hard landing, folks.
The last act of the previous housing bubble was the bankruptcy of Lehman Bros, the failure of Washington Mutual (and hundreds of other banks), and the near collapse of the entire financial system. The residential mortgage backed security (RMBS) industry spawned during that bubble marked the peak, or the beginning of the end. When no more bag holders could be found when the music stopped it all imploded.
Sadly, and due to bailouts and government policies, no one seems to have learned a lesson from what transpired only 7 years ago as Wall Street is once again engineering investment securities. Securitization is simply the pooling of assets to back a deal, which is what the RMBS were. The deal is then sliced and diced into different risk classes and sold off to investors desperate for some kind of yield. The riskier the exposure means a greater return, but also a greater chance of a total loss.
I'm really glossing over a lot of wonky details here because a lot of people find this stuff boring and dull. I don't as I find it fascinating that we are staring down the barrel of another bubble bursting...once again marked at the peak by securitization, only this time it is the securitazation of rental income, not mortgages. Read that again. Blackstone Group is the country's largest landlord, owner of some 32k rental units. Deutsche Bank is currently in negotiations with Blackstone to bundle and sell bonds to investors backed by rental income. In other words, Blackstone is selling off their exposure to the rental and real estate market and running for the exits. They are looking for a greater fool to take hold of the bag of REO exposure they are holding. Once Blackstone and Deutsche Bank price these investments out and begin selling them, it is only a matter of time before others do the same....and if they are selling, that means there are buyers, just like before (see: AIG, Bailout Of).
Blackstone Group has been one of the biggest cheer leading housing bulls in recent memory. If they are actively selling off their exposure to real estate I would say their actions speak louder than their words...read the whole thing here.
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