Amidst skyrocketing home price increases, President Joe Biden has put forward several proposals to make home buying easier, especially for first-time and first-generation home buyers who don’t have a home. equity in their home or family members to fall back on.
But keeping homes out of the hands of Wall Street investors could be a heavy burden.
The White House has taken note that institutional investors are crowding out families in some markets, saying in a statement last month: and pushing up lower cost home prices.
Almost one in four single-family homes in the country has been purchased by an investor.
To give future homeowners a head start in the competition, the Department of Housing and Urban Development said last month it would give families and nonprofits a longer window to bid. on properties foreclosed by FHA or owned by HUD that would be put up for sale before offering the properties to investors, and would work to “extend and create exclusivity periods” during which investors would not be able to make offers for these houses.
Since the Great Recession, when investors picked up thousands of foreclosed homes, their participation in the housing market has fluctuated slightly from year to year, but has tended to stay in the range of around 15% to 17%. %. From 2021, however, economists saw a remarkable increase. The share of investors in home purchases hovered around 19% in the first three months of the year, then started to climb sharply. In June, the most recent month for which data is available, real estate data firm CoreLogic found that 24.3% – almost one in four – of single-family home purchases across the country were made by investors. .
Frank Nothaft, chief economist at CoreLogic, said there are a few factors driving this increase: Even as mortgage rates rise from their all-time lows, the capital debt market remains awash in easy money. . “Large institutional investors are content to tap directly into the capital markets,” he said. The end of moratoriums on evictions in many jurisdictions has also emboldened investors, he added.
Laurie Goodman, vice president of housing finance policy and founder of the Urban Institute’s Housing Finance Policy Center, said the impact of large investors varies depending on the market. “Their impact is disproportionate in some neighborhoods,” she added.
The main problem, she said, is a shortage of supplies – a condition that predates the pandemic by years. According to the National Association of Realtors, under construction over the past two decades has created a housing shortage of 5.5 to 6.8 million units.
The challenge is not just how many homes investors are buying today, but what types of homes. Wall Street effectively competes for the same inventory as most first-time homebuyers: starter homes that sell for modestly compared to surrounding properties, usually because they need a certain number. renovations or repairs.
“They tend to buy a certain type of home,” Goodman said, noting that many target properties are in need of repairs or renovations. “They have a few advantages over homeowners in terms of homes in need of repair… and funding for the renovation is onerous for individuals. As such, she said, one policy solution that could help housing seekers would be for funding to undertake major renovations to be easier to obtain.
Geography matters too: Investors target fast growing areas with relatively low house prices. Much of the emigration from expensive housing markets like California has given buyers the opportunity to purchase new homes in cheaper locations, meaning first and first generation buyers are also competing with a growing number of non-institutional cash buyers, too.
“The gap between the pending sales index and the level implied by the mortgage application data suggests that [the] The proportion of cash buyers remains high, ”said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a recent research note.
The homes that investors buy also tend to be detached single-family homes – the category of housing that has seen by far the biggest increase in demand since the start of the pandemic.
“During the pandemic, there has been a clear preference for families to have more living space inside their home, in part because they use it as an office and can also use it as an office. school, ”Northaft said. “There was more demand for living space and more desire for social distancing from neighbors, and those are two attributes that you are more likely to get from a single-family property, especially a single-family home, and that manifests itself materially. both in the purchase market and in the rental market. Much of this shift in demand appears to come at the expense of tall multi-family high-rise buildings located in urban cores, he said.
“In some markets where a lot of large institutional investors are buying, they’re going to target that lower median price home – that’s exactly the kind of home that a first-time buyer will be looking to buy,” Northaft said. “In some cases, they can be competing with a large institutional investor who can offer all the money.”