Comment by kelipso
4 days ago
I don’t think it’s an unreasonable assertion in the first place. Just because they are holding a small portion of all houses doesn’t meant they can’t have a huge effect. The primary reason being that the portion of houses on sale is small as well. Another reason being they are huge institutions with tons of money, and thus can hold houses longer, buy houses are higher prices, influence related markets, etc.
> Just because they are holding a small portion of all houses doesn’t meant they can’t have a huge effect.
There's no reason to believe that someone owning a tiny portion of the houses is setting the market price.
> they are huge institutions with tons of money, and thus can hold houses longer, buy houses are higher prices, influence related markets, etc.
No huge institution is willing to lose enormous sums of money waiting for vacant overpriced houses to sell.
I've lived in many houses. One was in a development, and I wanted to sell it. There were several houses in it that were vacant and for sale with no offers in the previous year. I sold mine in 3 weeks. It was simple - I priced it properly, and I didn't have to pay another year of taxes, insurance, repairs, maintenance, and worry, only to have to lower the price anyway to get rid of it. A couple of the other homeowners were angry with me about that, but that was their problem.
There is reason to believe that someone owning a tiny portion of the houses is setting the market price because that tiny portion is a significant portion of the houses on sale.
Before we even reach the question of how true that is, there isn't evidence that any firm holds a significant portion of the "houses on sale". A starting point here would be the fact that corporate investors buy houses and hold on to them, and thus definitionally don't hold any of the house on sale, but whatever, either way, just flesh the story out instead of handwaving it.
if we start with reasonable but definitely vague numbers that suggest 2M houses are for sale and institutional investors own 500k of the total stock, it suggests this is NOT true; it's unlikely they own all their houses in the same geo market and they're all for sale at the same time. This doesn't mesh with a business strategy (diversification) or the typical model (they rent houses; they don't flip them).
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> It was simple - I priced it properly, and I didn't have to pay another year of taxes, insurance, repairs, maintenance, and worry, only to have to lower the price anyway to get rid of it. A couple of the other homeowners were angry with me about that, but that was their problem.
I think you just explained partly the reason behind why a small number of owners can drive the prices up. But these are usually private owners. Whenever I see bank sales, they're more like flash sale and done.
Those who can afford to sit on the property trying to obtain a higher price will do it. Other owners will look at that and try to keep the price high with the illusory hope that they can also make that much money. Individual owners can suffer from FOMO and are influenced by success stories, so ask a high price hoping to capture as much of the value as possible.
I saw it in action when I bought my house. The seller saw his neighbor selling the house a year earlier for [princely sum] so he jumped to put his house on the market for [princely sum +20%]. The whole neighborhood was following the same playbook, looking at who sold and raising the bar. After a year with that house on the market I became interested and in a 6 month process I ended up buying the house for [princely sum -20%].
None of the neighbors know how much he got, only know how much he asked. A similar house 50m away is still up for sale for even higher price than than the listed price for mine. They can afford to sit on it for a while because the extra money they hope for covers the taxes and upkeep tenfold or more.
"None of the neighbors know how much he got, only know how much he asked. A similar house 50m away is still up for sale for even higher price than than the listed price for mine. They can afford to sit on it for a while because the extra money they hope for covers the taxes and upkeep tenfold or more."
At least where I live, real estate sales are public and you can easily find the sale price at the county assessor's website.
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> Those who can afford to sit on the property trying to obtain a higher price will do it
I could afford to sit on it, but I try not to be stupid with investments.
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this is not true, this is the basis for housing speculation. Holding vacant overpriced houses until they sell. Its not a loss until you close the sale.
Of course it is. Real estate incurs significant carry costs.
this doesn't make any sense; you're tying up significant resources and losing out an the alternatives. Nobody evaluates investment returns in isolation.
the numbers I have seen suggest that institutional investors own about 500k of the ~100M residential properties in the US. Small investors probably own about 15M in total. Roughly 2M units are for sale, so even if every single institution-owned unit was for sale they wouldn't be able to exert much influence. The fact that this is a big, complex and widely distributed market IS the reason they can't distort it like they do with specific industries in a given geography.