Hello! Welcome back from the long weekend.

The S&P 500 and Nasdaq are coming off a five-week winning streak and investors are banking on history: Stocks usually crush it in the summer before a presidential election, according to Bank of America.

More on that below — but first, a look into Wall Street’s role in the housing market.

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Institutional buyers didn’t start the housing crisis

The US housing market is tight, expensive, and losing momentum.

But not because of Wall Street.

Legislators and retail professionals alike often blame the lack of affordable homes on institutional buyers and private equity firms.

These massive companies, the thinking goes, invest, flip, and otherwise sit on a huge share of properties which ultimately makes it harder for Average Joes and Janes to enter the market.

The David-and-Goliath narrative is easy to support (see: GameStop) but that doesn’t make it accurate.

It’s true that financial behemoths have resources that far eclipse those of the typical American household, yet bidding wars rarely pit the two against one another.

The chart below from consultancy firm John Burns illustrates how institutional buyers snap up less than 1% of the 105 million single-family homes in the US.

Similarly, the National Rental Home Council estimates that big investors accounted for 0.74% of single-family home purchases at the start of the pandemic housing boom.

But again, the investors that have their names on Manhattan skyscrapers make up a nearly-invisible fraction of that.

“If anything, it’s shocking how small of a share big financial firms have in the housing market,” wrote Ritholtz Wealth’s Ben Carlson in a recent note.

To be fair, investors of all types — Airbnb managers, landlords, mom-and-pop rental owners — do account for about a quarter of home-buying today.

That’s roughly double what it was in 2002.

But ultimately, it’s not a matter of Eat the Rich, but Econ 101. The housing market’s snafu can be traced to more than a decade of under-construction after the 2008 housing crash.

Supply can no longer keep up with demand.

To that point, the Commerce Department reported Thursday new home sales in the US declined 4.7% in April — more than expected — to hit 634,000, seasonally adjusted.

That pullback in activity is a reflection of waning affordability and limited inventory. 

With mortgage rates hovering near 7% and home prices still elevated, many house hunters have been priced out of the market. Plus, homeowners who secured lower rates during or before the pandemic don’t want to move. 

That “lock in” effect keeps a swath of both buyers and sellers sidelined.

Torsten Sløk, Apollo’s chief economist, wrote in a note last week the US has an estimated deficit of about 2.3 million homes.

Household formation continues to outpace the number of homes being built, as illustrated in the chart below. 

Just like we shouldn’t blame Wall Street for the dilemma, we shouldn’t look to it for solutions, either. 

JPMorgan, for one, does not see homes getting more affordable anytime soon, though the landscape could improve if the Federal Reserve cuts interest rates.

Mortgage rates, in turn, would eventually come down too.

Looser policy opens the door to improved economic growth and, indirectly, Americans’ purchasing power.

“We think the path to affordability, for starter homes as well as the luxury market, is that wages rise to catch up to and meet the higher costs,” said Joe Seydl, senior markets economist at JPMorgan Private Bank.

*At a glance:

Elsewhere:

Rapid-fire:

Last thing:

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