The recent housing market performance has made gains not seen since just prior to the housing market crash of 2007, and Wall Street is tentatively interested in getting involved.
The market is on fire and showing little signs of slowing down any time soon. The most recent data shows home prices rose for the second consecutive month in October, extending gains made just before the housing market crash of 2007. Home buyers put out 0.2 percent more for homes in October than September, bringing home prices to a new all-time high.
Investors are eyeing the market as an area ripe with opportunity. The number of investors who flipped houses in the first three quarters of 2016 reached levels analogous to 2007, the Wall Street Journal reports. These private investors are raking in some hefty sums, making an average of $61,000 a flip.
Wall Street banks, which almost collapsed because of faulty real estate investments just a decade ago, are now providing investment vehicles for house flippers. While the market is relatively small with just $700 million in deals in recent months, Wall Street is gearing up to get a piece of the action.
Walls Street, however, is gearing up to ensure it does not make the same mistakes it did nearly 10 years ago.
Bankers are undergoing lengthy underwriting processes for those seeking loans, in efforts to ensure borrowers will be able to make good on their payments. In addition to taking more precautionary measures, Wall Street has come up with a way to help mitigate some of its risk in real-estate.
Banks say they are largely shielded from risk, because their loans are backed by a pool of securities. This shelters, or at the very least softens the blow, if any one of their lenders defaults on their loan. For example, JP Morgan Chase has a pool of loan securities worth $60 million, and the firm will pay out against that amount for any bad debt, the Journal reports. This can also work to help consumers, as it decreases their investment risk also.
The home ownership rate in the U.S. is currently 63.5 percent, still hovering around a 51-year low. This means there could be room for the market to grow, and if home buying trends keep up, that rate will rise.
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