As Home Prices Soar, Smart-Money Investors Head for the Exits
Here is something sad about financial markets: By the time ordinary investors notice a market is rising, it is often too late: Smart money heads for the exits, while the dumb money rushes in, just in time for the selloff.
Take housing, for example: If you have merely glanced at the front page of any major American newspaper this week, you have seen fist-pumping headlines about how the housing market is soaring. National home prices are up more than 10 percent in March from a year earlier, the biggest gain in seven years.
But before you borrow against your new-found housing wealth to fill your home with flat-screens and Cheez Doodles, please note that some of the same investors who helped pump up the market are now getting out, Bloomberg Businessweek reported on Wednesday.
Though this doesn’t necessarily portend another housing crash, it is a reminder of how shaky the recent rally in home prices has been, and of how we should keep that economy-is-all-fixed champagne on ice for a little while longer.
The magazine tells the tale of a California hedge fund called Carrington Holdings, which was one of the first investors to pump money into the $2.8 trillion market for rental houses. Carrington is now seeking greener pastures, as prices have soared and potential investment returns have fallen. And the neighborhood, so to speak, has really gone downhill lately, according to Carrington CEO Bruce Rose.
“There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible,” Rose told Bloomberg Businessweek.
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