Investors Continue to Bail on Single-Family Home Purchasing
CoreLogic asks whether this will follow the historical pattern of ticking up after June.
Investor interest in purchasing single-family homes has fallen each month since February, according to a report this week from CoreLogic, which cited rising mortgage rates.
The percentage of single-family home purchases made by investors dropped by 8 points from Q1 to Q2, suggesting that these buyers may be more sensitive to interest rate increases than owner-occupied buyers, the report said.
This activity peaked in February 2022, when investors made 28% of all single-family purchases, the highest monthly share since 2011, according to CoreLogic.
CoreLogic economist Thomas Malone said that the big question going into Q3 and Q4 of 2022 is “whether the investor share will follow historical patterns. In 2019 and 2020, June was the slowest month for investor activity, which then began to tick up until hitting its peak in January.
“This dynamic is likely still at work, but any further interest rate hikes in Q3 may temper investor activity. The Q2 data give us the clearest signal so far that we are at the beginning of the end of the investor surge.”
Ian Shepherdson, a chief economist at Pantheon Macroeconomics, tells the New York Post that the Federal Reserve’s policy tightening has carried the US housing market into a slump. He said policymakers aren’t acknowledging the damage they have caused as July’s new single-family housing sales were at the lowest level in seven years.
“The housing market is in much worse shape than the Fed has been willing to admit,” Shepherdson said in a note to clients. “But policymakers have made it clear that inflation is their primary objective, and housing is collateral damage.”
Neighborhood HOAs ‘Outraged’ at Tactics
Scott W. Hawley, managing director with Kaplan Residential in Atlanta, tells GlobeSt.com that in Southeast markets where he develops multifamily communities, he has witnessed the adverse outcomes that often result from institutional investors purchasing some, or all, of a residential single-family community to turn a profit off the rental market.
These include increasing home values in the community well above what a traditional homeowner could afford to buy as the investors pay well above market value, not having a formal property management team on-site, and more.
“This has resulted in outraged neighborhood HOAs who don’t want the transience of renters in their community that might bring crime and impact school ratings,” Hawley said. “To combat this, HOAs are creating new bylaws banning owners from renting their homes in an effort to make investors turn away from this hostility.
“Owning a home has benefits, but it also is where the majority of people’s money is tied up. The slowdown in the economy due to rising inflation and losses in the stock market means that many consumers have fewer savings to put a 20% down payment on a house, and due to job uncertainty (the dreaded ‘recession’ word), individuals may not want to be house poor.
“We’re seeing that with the steady migration of people to the Sun Belt, ‘newcomers’ to an area want to rent initially before deciding to buy. And the trend has been that once they start renting in a new area, they tend to rent longer than they originally planned.”
Hawley said that in today’s market, most people watched a family member or friend lose a job, income, and possibly a home during the last financial crisis.
“This was very painful for our country, and those memories are not so distant to be forgotten, resulting in many renting vs. owning their dwelling,” Hawley said.
In ‘Correction’ Territory
Michael Romer, managing partner of NYC real estate law firm tells GlobeSt.com, “We are in midst of a single-family market correction in many areas of the country. For a large-scale investor to maintain interest, there has to be a sufficient return.
“With record inflation and aggressive rate hikes, everything costs more right now, including real estate. Higher acquisition and construction costs result in higher sale prices and higher rents. This limits the number of interested buyers/renters which in turn limits profitability. This country is in dire need of more affordable housing. Investors and lenders are trending in that direction.”
Buyers, Sellers Can’t ‘Meet in the Middle’
David Vincent, investment specialist, Cadre, tells GlobeSt.com, “Many commenters have opined that the recent jump in mortgage rates is hurting the housing market, but I believe there is more to the trend than that.
“It is true, all else being equal, a rise in financing costs will mean that buyers will have to buy smaller, cheaper homes or otherwise make lower offers on more expensive homes. Until sellers adjust their prices downwards, it will be hard for buyers and sellers to meet in the middle. Unless you are a forced seller (death, loss of a job, loss of income) you may be inclined to keep your house until you think you can get the price that you believe it is worth.
“However, if you take a closer look at data, it tells a different story. While higher mortgage rates are likely having a cooling effect on the housing market, that’s not the only thing going on. There were 5.1 million existing homes sold in June (according to the National Association of Realtors).
“That number is the lowest since July 2020 and is down about 19% from the recent peak last November. It sounds pretty bad, but don’t forget that we just went through a global pandemic that impacted a lot of consumer behaviors – home buying is certainly one of them. There was a meaningful increase in demand for houses throughout, and in particular during the early part of, the Pandemic.”