Housing Wire magazine has a headline asking whether real estate investor home sales mask a weak housing market, and whether the hype has gotten ahead of the underlying fundamentals. Also, the article asks what has been the real role of large institutional purchases.
Writer Trey Garrison interviews several experts, including Trulia’s Jed Kolko and Lance Roberts, of STA Wealth Management, who give their thoughts on the issue. Personal Real Estate Investor Magazine also has our take on this looking at the latest data from Altos Research. Click here to see the Altos information.
Roberts, says the housing recovery is ultimately a story of the “real” employment situation. With roughly a quarter of the home buying cohort unemployed and living at home with their parents the option to buy simply is not available. The rest of that group are employed but at the lower end of the pay scale which pushes them to rent due to budgetary considerations and an inability to qualify for a mortgage. Read more of Roberts thoughts here.
Kolko, chief economist with Trulia, told housingwire.com said that while housing affordability will worsen in 2014 and home buying will decline, he doesn’t think the wave of institutional investors will have an effect on rental rates, even though it has definitely affected home prices.
But, he said, he doesn’t think the rise in home prices is primarily because of the influx of investors, but rather an effect of a big rebound — i.e. some markets dropped so much that even double digit gains have prices still below their recovery levels.
Using American Community Survey data from 2005 and 2012, Kolko looked at the change in metro housing units that were single-family rentals.
Most metros had a large increase in the share of their housing stock that was single-family rentals. Among the 100 largest metros, Kolko looked at the top 10 with the biggest increases in institutional investments (from one to ten) – Las Vegas, Nev.; Phoenix, Ariz.; Cape Coral-Fort Myers, Fla.; Memphis, Tenn.; Riverside-San Bernadino, Calif.; Tuscon, Ariz.; El Paso, Texas; Lakeland-Winter Haven, Fla.; Fresno, Calif., and Sarasota, Fla.
“Then, I compared the increase in single-family rental share with price and rent changes over the past year. Markets with larger increases in the single-family rental share had higher price and rent gains in the past year,” Kolko said.
“However – and this is what I suspected when we first talked about this – there’s another factor: the severity of the housing bust. Harder-hit metros saw both a bigger increase in single-family rentals and higher price increases in the past year (due to the rebound effect),” Kolko said.
Adjusting for this, he said, is that markets with a bigger increase in single-family rentals had somewhat higher price increases over the past year but no statistically significant difference in rent increases.
The bottom line: the outsized and growing number of single-family rentals may be a serious indicator of an unhealthy housing market, but the impact it’s having on rental rates in general is nil, and at least part of the price appreciation the market has seen is as much a rebound effect as it is the impact of investor dollars pouring in and snatching up bargains.