BlackRock a giant investment corporation had embarked on a buying spree in real estate in 2019 increasing there real estate portfolio to 80,000 homes of mostly single family homes, and now facing a questionable turn when it comes to the performance of those investments. BlackRock specializes in array of services, such as Asset Management of large investment portfolios including (ETFs), mutual funds, and now scaling in the real estate investments.
BlackRock had faced a large magnitude of backlash for purchasing tens of thousands of properties for the sole purpose of renting them. Let’s quickly discuss the concerns and problems that they may be facing.
key takeaways:
- BlackRock started in 1988 and had scaled to a $101.57 Billion Corporation.
- BlackRock, interest rates, and changes in the economy changed the overall real estate market.
- The Company is far from bankruptcy, however their recent actions raises concerns.
- This article is not implying an economic crash but the performance and plans of the corporation.
blackrock purchasing neighborhoods to rent
According to a Wall Street Journal report, showcases how BlackRock has purchased neighborhoods in very popular cities such as Atlanta, Miami, Los Angeles and New York. Larry Fink the CEO of Blackrock and 6 co owners strive to expand its portfolio much further and increasing their equity, at the end of the day it’s a business. However, it is important to realize that they are still relatively small as compared to the whole real estate market which is worth $36 trillion dollars.
During 2019 and 2020, Many big investment corporations such as Zillow, iBuyer, and Rock had taken advantage of the record low interest rates and the decline of home prices has significantly dropped 20-30%. During these discounted times, it was not regular residents purchasing up these homes but large businesses which lead a surge in home prices due to competition.
In April 2023, home prices were being sold for less and less, however they’re making profit. Based on Redfin calculations the median price of purchased homes was $190,000 by BlackRock and actively being sold at a median price of $300,000. Keep in mind that the market has taken a hit in 2023, and regardless the drop there portfolio on average is 33% in profit.
The buyers market is coming close to an end, according to the same report by Redfin the company had sold a peak of 63 properties in August 2021. Fast forward to 2023 and continually declining due to interest rates and the prices of the home not dropping to the correct price, they’ve only sold 8 properties in the month of April.
why blackrock stopped buying homes
BlackRocks home purchases have experienced a decline of 90% as compared to the previous year of 2022, what had caused such a big change?
Increased Evictions
According to Eviction Lab, the eviction rate has risen to 970,000 eviction cases. Eviction rates are up 79% as compared to the year before. This increase of eviction rates, especially in california raises concerns if purchasing more real estate is a safe move after all. California where they protect the residents while providing them additional time, causes the landlords not receiving rent and having no choice but to cover the mortgage themselves.
Vacancy rate at 4,9%
Vacancy rate is at a staggering number of 4.9% which use to be 1.3% at the pandemic low. An increase of 300% in a few years. While more units continue to be sitting empty, it all falls down into a snowball effect of the whole real estate market, causing the rental market to also decrease. Vacancy rates is a great measure to dictate the market from residential, commercial to industrial properties. It is concerning to understand that out of every 100 homes, an average of 5 remain empty.
Lower Rent Growth
Rent has experienced a decline, the national median rent typically increases by 0.5% percent month over month. But in 2023 rent progression has back peddle. As more properties are sat on the market longer while mortgages are still active the prices of rent will continue dropping. There are properties where i’m from in California that have been in the market for rent for months even though they’re actively reducing the rent by $50 each month. With a real estate portfolio with this magnitude of $60 billion dollars, even a 3% vacancy rate can dramatically impact the business profits. These problems affect everybody including much larger investmentment corporations. The question remains, when will the bleeding come to an end and see a increase of demand from buyers?
Higher Interest Rates
Higher interest rates has affected us all but it has affected the large corporations the most. The Cap Rate of an investment drastically declined, and seeing profits are rare. The cap rate from a rental property is only 4.6%, and according to Wall Street, they are stating that large investors are losing money in their investments in real estate because of the interest of paying the bank is to high.
Another reason for the halt of purchasing more homes comes down to the difficulty of a regular homebuyer to go ahead and buy their dream home. With these interest rates has increased the mortgage by a lot, I had recently went house hunting and a $330,000 loan would come out to be a $2600 mortgage payment, an increase of $800 in only a year.
blackrocks negative reputation concerns
Larry Fink, the firm’s CEO has received many protests towards him due to ignoring climate change. BlackRock has put themselves in a position to encourage companies to make decisions that implicate of carbon footprints, and harm the earth.
Regardless that BlackRock has pledged to reach zero emissions by 2050, it still affects the earth as of today. BlackRock is by far the top institutional investor in fossil fuels, holding more than $130 billion dollars in shares.
Institutional investors rapidly selling
BlackRock is not the only real estate firm that manages billions of properties. Zillow a popular company that makes it easier to buy and sell homes had ran into a big problem, they found itself in a situation where they had to sell a large portion of its portfolio of properties of an amount of $2.8 Billion dollars worth.
Another example is Simon Property Group in which are a large investor in shopping malls, outlet centers, and community centers. They have been selling more and more of their portfolio due to vacancy of businesses, owning roughly 240 large market properties. If both the single-family housing market and commercial market experiences a decrease, the impact to the economy would be much greater than we can imagine.
2023 firesale coming?
Finding out whether it is a good time to buy your dream home is complex. The current economics is tricky due to the government’s focus on combating inflation, while at the same time trying to keep the real estate market afloat. The high increase of inflation has caused daily essentials to increase such as food, and gasoline. Unfortunately to attack inflation also affects the housing market by adjusting the interest rates which is meant to slow down people’s purchasing power and companies which slows down the demand making it a challenging environment for buyers.
The right time to buy a home requires careful analysis. It is important to understand that nothing is guaranteed , it is important to wait for favorable conditions that assist you in getting a deal. Some good things to look out for is a decline in job layoffs, especially in the tech industry in which San Francisco has taken a hit. Waiting for a decrease in the inflation rate that is announced every first friday of the month, and looking out for rising wages are all a good sign of the beginning of a buyers market.
when is the right time to buy?
Determining the right time to buy and finding the right property for a investment can be tricky but we’ll break it down what you should be working on now.
- Financial stability is a very important goal before purchasing a home. Decreasing your debt from your credit cards, to your car loans can help you qualify for the most in real estate. Increasing your credit score will also go hand to hand to secure the best deal when big corporations have no choice but to sell there portfolio.
- Keep track of market conditions, for example Phoenix Arizona was a hot spot for institutional investors to buy up the homes in hopes that they’ll sell it for profit. If the institutions have no choice but to start selling their portfolio you’ll see a big drop in real estate in these main cities such as, Phoenix Arizona, Miami Florida, Henderson Nevada, and Fort Lauderdale.
What happens if institutions collapse?
If the event ever occurs where massive institutions have no choice but to sell off their portfolio due to financial problems, and bankruptcies occur. Would that benefit you in getting a good deal? Most likely not, it would most likely duplicate what had happened in 2008 with the housing crash, ultimately the collapse of institutions filing bankruptcy would start a snowball effect of problems, leading to a market collapse, from problems in the stock market, but employment and various other issues.
Instead of hoping for them to fail we should rather hope that they need to sell small portions of their portfolio to stay alive, rather than fully liquidating their entire holdings.
The event in 2008 housing crash was near total disaster, however was saved by government bailouts, fast forward to now the likeliness of the government bailing out corporations especially large real estate ones is low. If they fail, than they fail. If a massive sell off of homes occur the market will have to many properties for sale and little amount of buyers decreasing the will to purchase a home.
The consequences of a market collapse would affect the entire world. As tech companies have to lay off employees and employees not being able to rent, would create a widespread issues in bankruptcy indicating a total collapse.
to conclude
In conclusion, this article has explored the present situation that BlackRock faces, examining their recent changes and their responses to the new market conditions. We have delved into the entire market. Such as the increase of evictions, the rise of vacancy rates at a staggering 4.9%, the decline in rental prices, and the lack of demand for renters. We also dived into the impact of the interest rates and you can get the newest updates every first friday of the new month on fxstreet.com.
The current state of BlackRock are facing slight issues however they seem to be nowhere near total collapse. Regardless of the surge in evictions has not contributed as much damage to the company. We hope that this article has provided informative content to help you have a deeper understanding of BlackRock.
