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How investment firms are threatening the housing market

Institutional buyers are snapping up houses at a feverish pace and keeping some potential homeowners out of the market. Rising mortgage rates could be to blame. 

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Steven Senn/AP/File
A for sale sign hangs in front of a house in Walpole, Mass. last month. Institutional buyers are snapping up homes, taking up their largest share of the housing market in two years

A young client of mine told me he and his wife had been outbid on a handful of houses this past spring, despite the fact that they had literally begun showing up to see homes for sale with a checkbook and engineer in tow. They couldn't figure out who it was buying up all the properties in the upper middle class enclave in which they hunting.

Turns out, it was private investment firm, paying cash. This meant no mortgage contingency, which is music to a seller's ears. In some cases, homes were being bought over the phone, their realtor told them.

Bloomberg tells us that this phenomenon hasn't stopped yet...

"Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters.

Institutional purchases accounted for 14 percent of sales, according to a report today from RealtyTrac. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 percent from 40 percent in August and 30 percent a year earlier, a sign that rising mortgage rates since May have kept some people out of the market and that smaller investors are stepping up purchases."

Ten years ago, we were told to become owners.

Now we're all supposed to be renters.

Endless ZIRP and QE has certainly helped home prices, but it's introduced a new predator into the housing ecosystem, one that shows no sentimentality when scooping up property whatsoever.

Just as the Federal Reserve intended, I'm sure.

Chalk up another 'W' for the holders of financial assets.

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