Comment by ctoth
2 days ago
Ownership share is a stock. Prices get set by flow - transactions. Housing is a thin market; maybe 5-6% of homes change hands in a given year. Price discovery happens at that transaction layer.
Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier. That's the market where we first-time buyers actually compete.
In some metros it's more concentrated.
Atlanta: ~30% of single-family rentals corporate-owned.
Charlotte neighborhoods in 2022: 50%!!! of sales to institutional buyers.
So for your 1-2-3... maybe something like?
1. Institutional buyers concentrate in starter homes where they're 29% of transactions, not 3% of stock
2. Target metros/neighborhoods go higher still
3. Real estate uses comps-based pricing - their winning bids propagate to surrounding valuations
The mechanism isn't inventory control, it's just a buyer with a different utility function (rental yield vs owner-occupancy) systematically outbidding price-sensitive first-time buyers. In a thick market that gets arbitraged away. In a thin market with sparse comps, each transaction is a price-setting event.
The St. Louis Fed found institutional presence specifically increases price-to-income ratios in the bottom tier.
If you're evil corporate Landlordman You don't need to affect the whole market. You just need to cut off the bottom rung of the ladder.
Is this Trump move the right one? No frickin idea! But I do think we need to reckon with what's actually happening to first-time homebuyers. I bought a place in Englewood Co last year and ... it was pretty rough.
Whoah, hold up, your (3) is doing a lot more work than you think it is. Comps matter but they don't literally break the market:
* They impact listing prices but not necessarily clearing prices.
* They assume all the sellers, who are not corporate investors, can mechanically anchor off those inflated comps, without factoring in buyer budgets and carrying costs.
Real estate is slower than most financial products, but it's still an actual market. You can't just buy a tiny fraction of the inventory at an inflated price and assume the whole rest of the market will follow you.
Reread my #3 in the context of "rental yield vs owner-occupancy."
I'm not saying comps magically anchor prices. I'm saying institutional buyers ARE the clearing prices, because they are anchored to "how much can I rent this out for" whereas first-time homebuyers are anchored to "how much can my mortgage cover?" which are different questions.
29% of transactions, not 3% of stock.
Those become the comps. There's less of a gap for "but buyers won't pay that" because the institutions *are the buyers. The call is coming from inside the housing market.
I'd actually just say that comps magically anchor prices in the constrained market we've been experiencing. As a person who was looking to buy a few times over the last few years, comps strongly affect appraisals which affects whether a company will issue a loan for the house (appraisers actually send you the houses they based their appraisal on). Plus realtors base their understanding of the market on comps when they try to help you form your offer. And of course sellers will look at comps when deciding what to ask for and whether to accept your offer.
Now this only really works in constrained markets, but intrinsically there's always a time constraints in buying (our lifetime of course, but also life events and lease renewals and er ). There's of course also selection constraints because of the aforementioned time constraints, and location, and whether new construction in happening within those.
Saying "they impact listing prices but not necessarily clearing prices." might be logically consistent, but is disconnected from the reality of the housing market.
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Respectfully, I think 'individuals' is doing a lot more work in GP's 'But most of the "investors" buying up property are individuals purchasing investment properties.'
The average 21+ US resident may own 2+ properties but I'd be surprised if the median equivalent owns 1. It kinda hides the equivalent of the top x% of individuals owns y% of the stock market where y is unreasonably disproportionate to most.
I'll add one more data point to the thread;
The timing and pricing of investor selling is different to residents selling.
Residents sell (mostly) for reasons other than profit. They might be moving up, or moving away, or whatever. There's some pressure to "get it done" so they can move on. They can't really afford to "time" the market.
For investors there's much more "buy in the down, sell in the up". Except that it's been going up for a while, so there's no motivation to sell at all. It would be uncommon for them to accept a loss. Even unoccupied it's (mostly) better to hold rather than sell at a loss.
As mentioned elsewhere, overall market penetration by investors differs wildly by market, and segment. So 3% overall might sound low, but 20% of a dwelling type in a specific market is plenty to alter market forces.
I say this as someone who has owned property as an individual, and also worked in a business that invested in property.
> there's no motivation to sell at all
There's a huge motivation - the time value of money. And all the costs of having the house sit there not earning money.
An $800,000 house costs you $150/day in lost income.
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>but it's still an actual market
It depends on the swing of the market if it's a buyers or sellers market.
In the past there was far more spread in housing prices. These days real estate agents tend to follow a few market making sources for setting those prices, along with personal home sellers looking at 'internet prices'.
>inventory at an inflated price and assume the whole rest of the market will follow you.
When you target particular areas you absolutely can.
> Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier.
Not true. That 29% is “investors”. Only one fifth of those transactions are from “institutional investors”. It’s mostly evil non-institutional investors, who also own ~97% of single-family rentals.