Weekend Economists Toast the Apostle of Ireland March 14-16, 2014

[Demeter]

27. Investors Pulling Back — What Happens to Housing Now?

http://houseofdebt.org/2014/03/14/investors-pulling-back-what-happens-to-housing-now.html

Bill McBride at calculatedriskblog.com (a must read in the economics blogosphere) has been doing some fantastic posts on the abrupt pull-back by investors in the U.S. housing market. They were very aggressively buying homes in depressed markets from 2010 to 2012, but the excitement is now cooling. This is closely related to a previous post where we showed that house price growth has been stronger in cities where investors were extremely active.

http://www.calculatedriskblog.com/2014/03/report-blackstones-home-buying-binge.html
http://www.calculatedriskblog.com/2014/03/lawler-preliminary-table-of-distressed.html
http://www.calculatedriskblog.com/2014/03/lawler-early-read-on-existing-home.html

We argued in our previous post that the 2010-2013 housing rebound was “strange” because it was driven mostly by investors buying up foreclosed properties that were sold at prices below fundamental value (a “fire sale”, in the language of Shleifer and Vishny).

What happens now that these investors no longer see bargains? Who steps in to buy? Is the 2010-2013 pace of house price growth sustainable? Difficult questions. We plan on looking deeper at this issue as more data become available.

Wall Street Investors Take Aim at Farmland THIS IS WHAT HAPPENS

http://www.motherjones.com/tom-philpott/2014/03/land-grabs-not-just-africa-anymore

...corporations don't do much actual farming in the United States. True, agrichemical companies like Monsanto and Syngenta mint fortunes by selling seeds and chemicals to farmers, and grain processors like Archer Daniels Midland and Cargill reap billions from buying crops cheap and turning them into pricey stuff like livestock feed, sweetener, cooking oil, and ethanol. But the great bulk of US farms—enterprises that generally have razor-thin profit margins—are run by independent operators.

That may be on the verge of changing. A recent report by the Oakland Institute documents a fledgling, little-studied trend: Corporations are starting to buy up US farmland, especially in areas dominated by industrial-scale agriculture, like Iowa and California's Central Valley. But the land-grabbing companies aren't agribusinesses like Monsanto and Cargill. Instead, they're financial firms: investment arms of insurance companies, banks, pension funds, and the like. In short, Wall Street spies gold in those fields of greens and grains.

Why are they plowing cash into such an inherently risky business with such seemingly low profit potential? For Wall Street, farmland represents a "reassuringly tangible commodity" with the potential for "solid, if not excellent, returns," the Oakland Institute notes—something clients are hungry for after being recently burned not long ago by credit-default swaps and securities backed by trashy mortgages. As the saying goes, you can't make more land; and as the Oakland Institute notes, "over the last 50 years, the amount of global arable land per capita shrank by roughly 45 percent, and it is expected to continue declining, albeit more moderately, going toward 2050."
Nearly 40 percent of US farmland is rented—and more like 50 percent in ag-heavy regions.

Financial institutions and food-strapped countries like China and United Arab Emirates have already been snapping up land in the developing world, where prices are low and labor is cheap. But now, the Oakland Institute reports, pricey US land is also looking attractive, because it "boasts some of the world's most fertile soil, advanced industrial farm technology, strong private property rights, [and] federally subsidized crop insurance."

And Wall Street likes a good bubble. Farmland prices have soared to all-time highs in recent years, pushed up by the government-mandated corn ethanol boom. The average per acre price of Iowa land surged about 60 percent in real terms between 2007 and 2012, and rents have jumped in lockstep...

CORPORATE SHARECROPPING