Machine Earning

Humans have been competing against machines for a long time.  Take John Henry for instance; he was an African American freedman known for his ability to quickly drive steel into rock, making holes for explosives, blasting the rock to construct railroad tunnels.  As the legend goes, Mr. Henry raced a steam-powered rock drill and won, only to have his heart give out from the physical stress.

Fast forward over 150 years, over several generations, and America’s economy looks quite a bit different.  But workers continue competing against machines.  Those working in service industries are now pitted against automation.  Take investment exchanges for instance.  The loud floors once featured in movies like Trading Places don’t really exist.  Instead, these relics are quieter because machines don’t yell yet comprise a majority of trading. Even this article from money.cnn.com from a few years ago estimates it was already over 50 percent.

Machines are now competing with humans for real estate.  Institutional investors use algorithms to scour the nation, looking for real estate with reasonable valuations.  They are much faster at finding such hidden gems and come backed with corporate cash, making it difficult for those requiring financing to offer competitive bids.  According to this Wall St. Journal article, 53 zip codes in the states of Geogia, North Carolina, Florida, and Texas are the most frequently purchased by institutions.  This, they argue, has resulted in accelerated price appreciation (a plus for existing homeowners in those zip codes) as well as faster than average rent increases (a negative for those unable to own).  Over the past five years according to Redfin, prices increased an average of 64 percent in these areas versus a national average of 48 percent, and rents are up 30 percent compared to the average 23 percent.

Another race could unfold if institutions no longer want these homes.  There was an instance in Milwaukee where such an owner needed to sell a large number of properties.  In order to get out quickly, it dropped prices by an average of 17 percent.  If a similar exit happens during a less strong housing market, current individual owners may find their hearts skip some beats if it drives down their overall net worth.