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Mega-Investors Don't Necessarily Drive Home Prices Higher

September 15, 2022 at 08:21 AM

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Correlation is there, but correlation does not imply causation, CoreLogic reported.

There are plenty of reasons why home prices sprung higher in 2021, but it appears that purchases by mega-investors – those who purchase 1,000 or more homes cannot be proven as one of them.

CoreLogic reported that June’s prices reflect an 18% year-over-year appreciation.

Thomas Malone, Economist, CoreLogic, dove into the topic and found ample reasons why these mostly cash-only buyers could have boosted prices in some markets.

“Mega-investors have been most active where home price increases are the highest,” Malone writes. “The outsized presence of mega-investors raises concerns that they are driving up prices and muscling potential homeowners out of the market.”

Why It’s True

The share of single-family homes purchased by investors grew from 16% in 2020 to 24% in 2021. States including Arizona (9% of purchases made by mega-investors), Nevada (8% of purchases made by mega-investors), Georgia (7% of purchases made by mega-investors), Florida (5% of purchases made by mega-investors) and North Carolina (5% of purchases made by mega-investors), all had price appreciation above 20%.

Indeed, the correlation between the share of purchases made by mega-investors and price appreciation is 0.65, a much tighter connection than all other investor classes and prices, where the correlation hovers at 0.39.

Why It’s Not True

However, Malone writes, “Correlation, however high, does not imply causation.”

That’s so because Malone then pointed out states such as California, Washington, Montana, Arkansas and Hawaii, which also had price appreciation above 20%, but these states have few to no mega-investors.

Plenty of other factors correlate with price appreciation, from population growth (0.55) or even average temperature (0.5).

“So far, no strong research has been able to disentangle investors from other factors that raise prices,” Malone writes. “We cannot say whether investors are a cause or consequence of appreciation.”

Nevertheless, the strong connection between the two cannot be dismissed.

“We cannot say with certainty that mega-investors have no impact on prices,” according to Malone. “Any additional buyer, whether investor or not, raises demand and thereby raises prices.”

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