Real Estate Investors took over the US Housing Market in 2021. But so far in 2022 they have been buying significantly fewer homes according to data from Redfin.
The decline in Investor activity, particularly from Corporate Wall Street Landlords, is likely due to 1) Higher Interest/Mortgage Rates and 2) Declining Profitability of Real Estate.
REDFIN INVESTOR DATA: https://www.redfin.com/news/data-center/new-construction/
Click the “Investor Share by Zip Code” tab to see Metro and ZIP Code Maps
The standard cap rate for a Single-Family Real Estate Purchase is now 4.4%, which is below the 30-Year Fixed Mortgage Rate of 6.0%. That means that any investors buying with debt – which is most investors – will likely lose money after renting out their unit and paying their lender.
The example of Progress Residential, the largest private Corporate Landlord in America, proves the point. They own lots of single-family rents in markets like Atlanta, Phoenix, Nashville, and Jacksonville. Lately the Mortgage Backed Securities that Progress Residential uses to finance their acquisitions have become a lot more expensive, leading to higher interest rates, lower leverage, and reduced returns.
This constraining profitability for Progress Residential and other Wall Street Landlords is occurring just as the US Rental Market Bubble is set to burst. Renters in America are overburdened by rental rates and can’t afford it. Only 87% of Progress Residential’s Renters pay their rent on time. At some point many of these tenants are going to default on their lease, and end up being evicted.
This mass wave of evictions was avoided during the pandemic due to the Federal Eviction Moratorium. But I don’t think tenants and landlords will be so lucky this time around. And it’s ultimately this, combined with declining Home Prices, that could Crash the US Housing Market even further.
But in certain cities more than others. The highest share of investor home purchases occur in Sun Belt markets like Atlanta, Phoenix, Jacksonville, Miami, and Las Vegas. I predict that these areas will likely have the biggest share of investors firesaling their homes over the next 6-12 months.
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