Institutional investors have a big impact on home sales, SFR

Institutional purchases of US homes are on the rise according to data from the National Association of Realtors. Consistent with other data sources, the analysis suggests that institutional investors, reacting to macroeconomic forces, are taking a large share of existing home sales likely emphasizing lower-priced units that would otherwise be available for sale. first-time buyers and low-income buyers. .

Using Black Knight deed records, NAR analysis found institutional buyers made up 13.2% of the residential sales market in 2021, up from 11.8% in 2020. As for a analysis recently performed in Newark, New Jerseythe data is based on a definition of institutional buyers as companies, corporations or limited liability companies.

This has a potential loophole in that small home buyers could use an LLC under the recommendations of attorneys and CPAs to protect their personal finances through such a business structure. However, it still suggests that, whether by an institution or a small investor, a significant amount of property is being taken off the market as private homes and turned into rental accommodation.

There was also a correlation between where institutional purchases were greatest and the availability of housing: “in counties where the share of investors was above the national average, listings were down 7% from a year-over-year in March 2022, and in counties where investor share was below the national average, listings were down only 4% year-over-year. Texas led all states with the highest share of institutional buyers (28%), followed by Georgia (19%), Oklahoma (18%), Alabama (18%) and Mississippi (17%). »

Additionally, median prices paid by institutional investors were about 26% lower than median prices in the same states. “The difference could be due to differences in the quality of homes purchased, as suggested by the NAR survey where 42% of respondents said institutional investors bought homes that needed repairs,” the analysis notes. “States with a higher share of institutional buyers than the country had a 20% lower price difference, while states with a lower share of institutional buyers had a 30% price difference, indicating that greater competition among institutional investors tends to drive up their bids.”

A second major finding was that institutional buyers tended to buy homes in areas with strong housing and rental markets as well as high incomes. Additionally, there was a correlation between institutional purchases and “a high density of minority groups, particularly black households, with twice as many black households in markets with a higher share of institutional buyers”.

The third major finding was at odds with the image of institutional buyers simply outbidding individuals for homes. The offer price is about the same as non-institutional buyers, but they “offer money and services that door-to-door sellers prefer”.