The Vista Q1 & Q2 2022: Single-Family-Rental Real Estate; an Investable Asset Class?

In a 2002 speech, President George W. Bush told an enthusiastic crowd, “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” Continuing a push started by President Clinton before him, Bush made increasing home ownership one of the cornerstone objectives of his presidency. And, for a time, what seemed like a noble and logical goal was working. Home ownership rates in the United States climbed steadily throughout most of the Clinton and Bush presidencies.

Starting in Clinton’s first term in the early 1990s, regulations restricting home loans were intentionally relaxed, and banks were slowly pushed to extend loans to riskier borrowers. By 1995, the traditional down payment figure of 20 percent had been replaced by the three percent down payment standard for all federally backed home loans, and by 2000 it was common to see no down payment at all.

Concurrently, Wall Street banks used a newly invented financial structure called securitization to bundle thousands of loans together and package them as investment products. Wall Street peddled these products – known as mortgage-backed securities – to insurance companies, pensions, and other yield-hungry investors. Mortgage companies now had the “out” they needed. They predictably sold off these “subprime” loans to Wall Street banks, shedding the risk as they loaned more and more money to lower quality borrowers. As most remember well, the Great Financial Crisis in 2008 saw this house of cards crumble. As the economy slid into recession, over-levered banks failed, weaker borrowers defaulted and lost their homes, and housing values crashed. By the end of the Bush Presidency in early 2009, home ownership rates were almost identical to where they had been at the beginning of Clinton’s administration.