By Jack Rogers
March 30, 2022, at 08:16 AM
View source version HERE
Institutional investors buying homes for SFR are competing with homeowners investing equity and digital house flippers.
In the housing boom that preceded the financial collapse of 2008, everybody wanted a piece of the housing bubble, including banks that bundled subprime mortgages into speculative instruments and house flippers who could turn a property around before the first loan payment came due.
Everyone made a ton of money until the music stopped and the bubble burst.
In 2022, the race to invest in houses is being fueled by the highest inflation rate in 40 years—driven by stratospheric increases in housing prices, including home prices and home-rental prices—coupled with a record-tight inventory of available housing.
Large institutional investors and publicly traded rental firms like Invitation Homes, who have been making high-profile purchases of thousands of houses to increase their SFR portfolios, have been fingered as prime culprits for the supply crunch that is shutting first-time homebuyers out of the market in many areas.
But a closer look at the hottest markets reveals that small investors, including new mom-and-pop landlords who used their home equity to buy property for SFR, are outperforming the larger players in single-family house purchases.
According to a new report from Bloomberg, mom-and-pop landlords far outnumber new institutional homeowners in several markets where home prices have increased the most, including Phoenix, Atlanta, and Tampa.
In Phoenix, 32 percent of single-family purchases in January were by investors with fewer than 10 properties, according to data from John Burns Real Estate Consulting. Large investors were involved in 12 percent of single-family transactions in Phoenix.
Bloomberg said homeowners in the highest-priced markets in Southern California are pulling equity from their homes and investing the money in multiple rental properties in lower-priced areas like Atlanta. The demand is so strong, smaller investors can leverage the rapidly increasing value of the rental properties to quickly expand their portfolios, Bloomberg reported.
Cash-out refinancing loans that let investors tap into their home equity more than doubled to $8 billion in the fourth quarter, compared to a year earlier, according to data firm Black Knight. This is the highest level of equity loans since the housing bubble peaked in 2006.
In another echo of the events that preceded the subprime housing collapse in 2008, Bloomberg reports that Wall Street is “jumping in” to finance investor deals for houses with “flexible underwriting” and higher rates than conventional mortgages.
Digital marketplaces for houses also are diving into the single-family market, buying houses and flipping them at higher prices. Last year, Opendoor Technologies—which calls transactions on its platform iBuying—purchased nearly 37,000 houses, five times the number it bought in 2020. It bought 9,600 more in Q1 2022.
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https://www.globest.com/2022/03/30/everybody-wants-a-piece-of-the-housing-crunch/?kw=Everybody%20Wants%20a%20Piece%20of%20the%20Housing%20Crunch