Are institutional investors helping to sink the domestic market?

A common question among the public is whether institutional investors continue to scoop up massive numbers of homes with large cash war chests and drive prices so high that people can no longer afford them.

According to a Redfin analysis, institutional investors bought 18.2% homes in the United States in the third quarter of 2021. And, as the company separately noted, 43% of realtors believe private pocket listings have become more common. These purchases are a tool used by institutional investors interested in house blocks.

It is therefore not surprising that the The National Association of Home Builders brings this issue to the fore. Everyone in the industry knows that prices have skyrocketed, but the NAHB put it in an interesting context: “Some homes are now bringing more to their owners than to their jobs: For the first time, growth The national average US home value has exceeded the inflation-adjusted median before-tax income.

It may be good for existing homeowners, but it’s perilous for those trying to buy a first home. There is no relief in renting, because the average monthly asking rent is now $1,901, according to Redfin, but things are even worse for homebuyers with rising mortgage rates.

And this is where institutional buying reenters the discussion. As the NAHB puts it, “While the causes of the affordability crisis vary, purchases by institutional investors or private companies of units for sale and for rent to rent or for resale at higher prices potentially make home ownership more difficult. , which limits the ability to build wealth.

Examples offered include a Bloomberg article noting that some of the tech platforms, like Zillow and Opendoor, “sell thousands of homes to institutional owners backed by KKR & Co., Cerberus Capital Management, Blackstone Inc. and other large institutions.” These sales often involve these pocket lists which are becoming more and more common.

And then, like the New York Times reported, Blackstone was expanding its reach into rental housingas a hedge against inflation, although the purchase of REIT’s preferred apartment communities. This appears to be a likely vehicle for future purchases aimed at expanding the rental housing market.

Ultimately, it’s not the institutional investors who have moved for years to underbuild both homes and multi-family properties. This created a shortage that drove up home values, making it an attractive investment vehicle.

The danger for investors is that the pressures will eventually materialize and the people, and their local governments, will demand change. St. Paul, Minnesota recently passed significant rent control legislation. A number of states have considered rent control legislation, for or against, but have yet to pass anything. If house prices and rents continue to rise, what will happen next year?