Wall Street vs. Home Buyers – Where It’s Most Competitive | Business


You don’t need a doctorate. in housing economics to understand that a low supply of homes for sale is behind the incredible 20% increase in house prices over the past 12 months.

But in some markets, it’s not just that there are a lot of households bidding against each other. In some cities, tenants and potential traders are increasingly competing with investors.

Housing data firm CoreLogic reports that investors – ranging from moms and dads who own up to 10 rental properties, to the largest of Wall Street players sucking thousands of homes – made up one in four purchases in the second quarter of the year. 2021. At At the start of 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, nearly one in three second-quarter home purchases were made by an investor. Not only do investors mean more competition, they usually have deeper pockets. Investors can often end a bidding war by showing up with an all-cash offer.

In Memphis, the median selling price of a home is less than $ 100,000. This may seem quite affordable in the context of the recent national average selling price of $ 352,000. But for the locals, the market seems to shy away from them. The average price per square foot in Memphis rose 24% to almost $ 90 in the past 12 months. For the record, wages in Memphis did not follow. In the 12 months ending in April, average wages in the private sector rose 5.5%.

In Atlanta, the median price of homes sold is less than $ 240,000 and the median monthly rent is $ 1,037. This is a lag for cash-strapped first-time home buyers. To get a monthly mortgage payment close to this median rent, you would have to get a house for less than $ 160,000 (assuming a 10% down payment).

According to CoreLogic, the top 10 places where investors have too big a footprint also include the Texas markets of Beaumont, Brownsville, El Paso, Lubbock and McAllen, as well as Phoenix and Salt Lake City.

Home buyers in the Hartford, Connecticut area are the least likely to have to face investors, according to CoreLogic. Still, the average price per square foot in the Hartford market has increased 16% over the past 12 months.

When could investor demand slow down?

Low bond yields are one of the main reasons investors are entering the single-family home market. You’re not the only one frustrated with the meager return on your 401 (k) or IRA’s core bond fund, or the infinitely small return on most bank accounts.

Investors looking to earn a fairly stable income (whether it’s your next door neighbor who owns two rental properties, or the big ones on Wall Street, including BlackRock and Blackstone) have a mature target in the housing market. None of the hottest investor markets in CoreLogic’s analysis are in the high-priced areas. Instead, investors seem more keen to buy more moderately priced homes and then rent them out. You want to live in a house. Investors want to create a quasi-bond from the same house, which at some point can also be unloaded at a profit.

While small investors have always been a part of the residential real estate market, Wall Street first became a factor in the wake of the financial crisis, grabbing foreclosed homes at low prices (and without the significant cost of mortgage fees. real estate brokerage in many cases because the houses were owned by their lenders). A bet that has paid off both by the increase in the values ​​of their underlying portfolio and by rental income. What is happening now is just a new chapter in investor demand.

CoreLogic notes that it is not clear whether investors are driving the price increase or reacting to the rise in values ​​by stepping up their investment.

Are investors really the reason housing is so expensive?

Zillow’s exit from the home rollover business shows how difficult it is for an institution to buy enough homes to grow a large business. But Wall Street and Corporate America are increasingly focusing on housing because it is a huge asset class – $ 36 trillion and rising in the United States – and fund managers need help. ‘productive places to invest in abundance of capital.

Big Money doesn’t drive up prices as much as a simple lack of housing supply, especially on the West Coast and other metropolitan areas where new home construction in recent decades has taken a toll. significant lag in population and employment growth. The current pace of new housing starts is slower than in 1989, when the number of households in the United States was almost 40% lower than it is today.


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