Carla Fried: Wall Street vs. Individual Homebuyers – Where It’s Most Competitive


You don’t need a Ph.D. Understand in the housing industry that a low supply of homes for sale is behind the astonishing 20% ​​increase in home prices over the past 12 months.

But in some markets not only do many households bid against each other. In some cities, tenants and potential trader-upper are increasingly competing with investors.

Housing data firm CoreLogic reports that investors – from Mamas and Pops who own up to 10 rental properties to the biggest Wall Street players sucking up thousands of homes – were responsible for 1 in 4 purchases in the second quarter of 2021 at the start During the pandemic, investors accounted for less than one in seven home purchases.

Where you are most likely to bid against investors

In Memphis and Atlanta, almost every third home purchase was made by an investor in the second quarter. Not only do investors mean more competition, they also tend to have deeper pockets. Investors can often end a bidding war by coming to the table with a cash-only offer.

The average home sales price in Memphis is less than $ 100,000. That may seem downright affordable, given the recent national average retail price of $ 352,000. But the market seems to be running away from the locals. The average price per square foot in Memphis is up 24% in the past 12 months to nearly $ 90. For the record, Memphis wages have not kept up. In the twelve months to April, average private sector wages rose 5.5%.

In Atlanta, the average home price for homes sold is less than $ 240,000 and the average monthly rent is $ 1,037. That’s a disparity for first-time home buyers in need of money. To land anywhere near that median rent with a monthly mortgage payment, it would require landing a home for less than $ 160,000 (assuming a 10% upfront).

The Texan markets of Beaumont, Brownsville, El Paso, Lubbock and McAllen, as well as Phoenix and Salt Lake City, are also among the top 10 places where investors have too much exposure, according to CoreLogic.

According to CoreLogic, the Hartford, Connecticut area home buyers face the least amount of competition from investors. Still, the average price per square meter is in the Hartford The market is up 16% in the past 12 months.

When could investor demand slow down?

Low bond yields are a big reason investors are moving to the single-family home market. You’re not the only one frustrated by the measly returns on the core bond fund in your 401 (k) or IRA, or the vanishingly low returns on most bank accounts.

Investors looking for a reasonably steady income (be it your neighbor who owns two rental properties or the biggies of Wall Street including BlackRock and Blackstone) have a mature target in the housing market. None of the hottest investor markets in CoreLogic’s analysis is in high-priced areas. Instead, investors seem most interested in snagging homes at more moderate prices and then renting them out. You want to live in a home. Investors want to create a quasi-bond from the same house, which at some point can also be debited at a profit.

While retail investors have always been part of the residential real estate market, it was only in the wake of the financial crisis that Wall Street became a factor buying up foreclosed homes at low prices (and in many cases without the substantial cost of real estate agency fees because the homes were held by their lenders) . This was a bet that paid off in both rising values ​​of the underlying portfolio in addition to rental income. What is happening now is just a new chapter in investor demand.

CoreLogic notes that it is not clear whether investors are causing the price increase or responding to the increase by increasing their investments.

Are investors really the reason housing is so expensive?

Zillow’s exit from the home flipping business shows how difficult it is for an institution to buy enough homes to scale a large business. But Wall Street and Corporate America are increasingly focused on housing, as it’s a huge asset class – $ 36 trillion and rising in the U.S. – and fund managers need productive places to raise abundant capital.

Big money is nowhere near as much driving price increases as a simple lack of housing, especially on the west coast and other metropolitan areas where new housing construction has slowed population and employment growth sharply in recent decades. The current pace of housing starts is slower than the pace of 1989, when the number of households in the US was nearly 40% lower than it is today.

Rate.com/research/news covers the worlds of personal finance and residential real estate.)

About Stephanie McGehee

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