Comment by tptacek
3 days ago
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.
All of you are assuming that buyers are rational, as if pump and dump in crypto was somehow isolated to the online world and not possible in the housing market. You don't have to have complete market capture to make that happen. All you need is to have enough volume that it causes potential buyers and sellers to play along.
If you're big enough, you can cause prices to ripple, get others to lose rationality and buy in on the ascent as you cash out and leave everyone else holding the bag for the crash.
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.
Returns are better on the lower end of the market, and demand for rent there is higher. Which is why most residential investment is at the bottom end, not the top end.
In most markets I'm guessing an 800k house is at the higher end of the market.
That aside, housing portfolios always plan for a certain amount of unoccupied space. It's built into the model. (That's partly why small investors who own 1 or 2 properties get hit harder by this.)
Equally, even if the house is empty, there's usually some capital gain going on.
Investing in property is a long-term investment. The cost of buying, or selling is very high. So it's about getting quality units, in the right market space, and then leveraging that for a decade or more.
Yes there are lemons. And yes they'll get sold, perhaps at a loss. But being unoccupied for a bit doesn't make it a lemon, and being unoccupied won't necessarily trigger a sale.
Institutional investors are much more experienced and thus also a lot more likely to not buy lemons in the first place. Most "mom and dad with a second property" investors either inherited a place, kept an earlier property they lived in, or bought another property in their own neighborhood. They're typically gonna make some mistakes along the way.
>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.