Investor Activity in the U.S. Housing Market: A Six-Month Decline
The landscape of the U.S. housing market has seen significant shifts in investor activity over the past year. According to a recent report from CoreLogic, the share of single-family homes sold to investors peaked at nearly 30% at the beginning of 2024. However, this figure has dropped considerably in the following months, indicating a notable change in market dynamics.
The Decline in Investor Purchases
Investor purchases began to decline in March 2024, and by June, they accounted for only 23.4% of all U.S. home sales. This marked the lowest share of investor transactions in two years, as noted by CoreLogic economist Thomas Malone. While this decline is sharp, Malone cautions that it may not be a permanent trend. He suggests that the decrease could be a seasonal fluctuation, with consumer buyers becoming more active during the summer months. The future of investor activity will largely depend on whether this trend continues into the fall, especially as interest rates are anticipated to drop.
A Historical Perspective
In June 2024, the number of investor home purchases fell to 80,000, a significant decrease from 112,000 in June 2023 and nearly half of the peak rate of 149,000 purchases recorded in June 2021. This peak occurred when mortgage rates were at historic lows, below 3%. The current figures indicate a shift in the market, as investor activity remains higher than pre-pandemic levels, which fluctuated between 15% to 20%.
The Impact of Investors on Home Prices
Real estate investors have faced scrutiny for their role in driving up home prices across the country. A report from the Government Accountability Office in May highlighted that while large institutional investors like Blackstone Group and Invitation Homes may have contributed to rising prices since the Great Recession, it is more challenging to determine their impact on homeownership opportunities. CoreLogic supports this view, stating that while investors add demand to the market, they do not contribute to supply, which ultimately affects prices.
Legislative Responses to Investor Activity
In response to concerns about the influence of institutional investors in the housing market, Senate Democrats, led by Amy Klobuchar of Minnesota and Sherrod Brown of Ohio, introduced legislation in July aimed at increasing transparency. This proposed bill would require large corporations and private equity firms to report bulk purchases of single-family homes to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) for antitrust review. Lawmakers argue that such measures could help prevent anticompetitive transactions that might lead to increased rents and reduced services, ultimately pushing homebuyers out of the market.
The Role of Institutional Investors
Despite the concerns surrounding investor activity, CoreLogic’s report indicates that institutional investors represent a relatively small portion of the overall housing market. In the 20 largest U.S. metro areas, "mega investors," defined as those owning at least 1,000 homes, account for about 1% of all purchases. Corporations owning at least 100 homes contribute another 2%, while small investors, those owning fewer than 10 homes, hold an 18% market share.
Investor Preferences Across Price Tiers
CoreLogic’s analysis also revealed interesting trends regarding investor purchases across different price tiers. Investors accounted for 29% of all purchases in the least expensive tier, which typically includes starter homes. In the mid-priced tier, they represented 22% of sales, while in the most expensive tier, they accounted for 21%. Malone notes that while investors have historically favored lower-priced homes, their presence in this segment remains elevated compared to pre-pandemic levels.
Implications for First-Time Homebuyers
The increased activity of investors in the lower-priced home segment raises concerns for first-time homebuyers, who often compete for the same properties. As affordability continues to decline, many first-time buyers may find themselves unable to enter the market, leading to increased competition from investors. This situation may keep first-time buyers in the rental market longer, allowing investors to fill the gap left by those unable to purchase homes.
Conclusion
The recent decline in investor activity in the U.S. housing market presents a complex picture. While the decrease may signal a temporary shift, the implications for home prices, legislative responses, and the challenges faced by first-time homebuyers remain critical areas of focus. As the market continues to evolve, understanding these dynamics will be essential for all stakeholders involved.