Peter Schiff: The Great Reflation of Housing

Peter Schiff explains the great reflation in housing. Hedge funds are paying cash to speculate on housing:

The new ownership class is not motivated to buy and hold the way Mom and Dad would. They are not looking for a place to live, raise families, and retire. They are simply looking for a decent return on equity relative to other investments. Many would happily put money in higher yielding bonds where landlord headaches don't exist. If better deals beckon, or if risks increase in the real estate market, the homes they bought will be dumped even faster. In the meantime, bidding wars involving hedge funds are forcing real buyers to pay more, oftentimes pricing them out of the market completely. Then as these properties hit the rental market, an absence of qualified tenants will depress rents. Lower rents will in turn put downward pressure on property values. Many rental houses will also sit vacant. Though hedge funds are cash buyers, most borrow large percentages of that cash to lever up their returns. However, when interest rates rise and rents fall, hedge funds will be forced to sell. But where will the buyers come from? The current crop of renters cannot afford to buy even with mortgage rates at historic lows. When rates rise, prices will have to plunge before real buyers could even qualify for mortgages.