Investors are swooping into the housing market as individual homebuyers continue to struggle with elevated home prices and higher interest rates. Nearly a third of home purchases so far this year have been made by investors to flip or rent, the highest share on record, according to a report in The Wall Street Journal, analyzing Cotality data.
The mix of single-family residential investors is also shifting with small investors making up about 25% of these home purchases during the first half of this year, while large investors accounted for about 5%, according to Cotality. It found that small investors who own fewer than 100 homes are securing more discounts and financial incentives from eager sellers while traditional home-buyers remain on the sidelines.
Regulators are keeping an eye on this trend, with some local and federal lawmakers trying to prevent investors from buying homes, saying this makes it harder for regular buyers to compete and exacerbates the price increase problem.
High prices and interest rates are also impacting investors, with some larger buyers slowing their acquisitions. Major investors like Invitation Homes, Progress Residential and Amherst have all been shedding more homes than they are picking up so far this quarter, according to data from Parcel Labs.
“We’re acquiring at a fraction of what we were several years ago,” partly because of high interest rates, said Chris Avallone, chief financial officer of Amherst, which owns about 46,000 homes.
Smaller investors appear to be willing to weather higher prices and interest rates because they see a solid business in buying, fixing up and renting out single-family homes, according to the WSJ. These firms may be able to take on more risk than larger entities because they don’t have to report to pension funds and outside stakeholders. Meanwhile, they can beat out traditional homebuyers with quick closings and all-cash bids that eliminate the issue of high interest rates.
Facing a glut of supply in markets like Texas and Florida, many home builders are offering discounts to small investors to clear their inventory and free up cash on their balance sheets. In the past, it has been much more difficult for small investors to compete with large residential companies. In July, 38% of builders reported lowering prices on their deals, the most since 2022, according to the National Association of Home Builders. Those deals are bringing new buyers to the market, including small funds representing wealthy individuals who previously invested in industrial or office real estate.
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