Investors Are Reshaping The Housing Market
For decades, single-family homes were an investment primarily for people who wanted to live in them. Real estate investors were around, but they were mostly individuals or small partnerships. That changed with the Great Recession and its aftermath, when investors bought at least two million homes, and almost certainly far more than that, with prices depressed. Large-scale institutional investors bought tens of thousands of homes for less than they cost to build.
At first, the flood of capital seemed like a one-time opportunity arising from the collapse of the residential real estate market. Once the bargains dried up, the investors were expected to stop buying.
Except they didn’t stop. Last year, investors bought about one in five starter homes in the United States (defined as priced in the bottom third of the local market), according to CoreLogic. That was even higher than in the early years after the Great Recession and about double the level of two decades ago. In the most frenzied markets, investors bought close to half of the most affordable homes sold last year, and as much as a quarter of all single-family homes.
The investors take many forms. There are fix-and-flippers who buy homes cheaply and resell them for a profit (sometimes to owner-occupants, sometimes to out-of-towners who rent the homes out on Airbnb). There are those who buy and hold, generally larger institutional investors who rent the properties out. There are traders who acquire properties and try to resell them once they appreciate, sometimes in weeks, sometimes in years.
What is happening is partly a familiar story of gentrification pushing up prices and driving out longtime residents. But those trends are being spurred by a fast-growing industry that promotes investment in single-family homes: lenders who provide the capital, brokers who handle transactions, wholesalers who buy homes by the dozens and sell them before they even take possession.
Many of these investors grew out of the housing bust, when companies like Invitation Homes, now backed by the private equity firm Blackstone Group, bought up tens of thousands of homes and rented them out. Now, many of the same systems those companies used to efficiently build and operate vast rental empires are themselves for sale — allowing even more investors to build portfolios of single-family homes with what amount to off-the-shelf management tools.