By Sam Wasson
Updated Nov 14, 2022
Making the leap from renting to homeownership has never felt more difficult for many families. Mortgage rates are skyrocketing, single-family homes are in high demand, and major demographic shifts have resulted in flooded suburbs. These factors alone have made it a nightmare for first-time homebuyers. But, another problem has been on the mind of many would-be homeowners, big, shrouded investment companies.
A common perception today is that, more than ever, large, faceless investment companies are purchasing houses en masse and converting them into rental homes. If true, this would mean that large swaths of U.S. homes are being swallowed up, resulting in a more competitive market, fewer available houses, and inflated home prices. In this article, we intend to delve into this myth, look at the hard data, and determine if faceless investment companies are buying out all the single-family homes in America.
According to data reported by the PEW Trust and originally gathered by CoreLogic, as of 2022, investment companies take up about a quarter of the single-family home market. Specifically, investor purchases accounted for 22% of all American homes in 2022. This number slightly decreased from last year (2021), which sat at 24%, with 90,215 homes in the third quarter alone. Over the last decade, the number of investors purchasing homes has increased from 10% to 15% each year, except for 2020 to 2021, which, according to a study by Redfin, saw an increase of over 80%. So, yes, investment and residential real estate companies are purchasing more and more American homes each year.
Until the early 2010s, institutional investors in American homes focused mostly on large, multifamily structures like apartment complexes. That all changed during the great recession of 2009. At that time, many single-family houses were purchased on faulty or highly unrealistic mortgages that resulted in foreclosure. As a result, huge swaths of residential homes were sold on foreclosure or at incredibly low-interest rates. Because of that, real estate investors had the opportunity and capital to purchase these properties in bulk. These properties were seen as high-return, low-risk investments since investors could buy them up at low cost, make minor repairs, and resell them once the market stabilized or turn them into rental properties. Since then, single-family homes have been a consistent investment opportunity in many companies’ portfolios.
After the stabilization of the financial crisis, investor interest in the American home market was steadily growing until late 2020. The pandemic was a colossal shift in almost every industry across the globe, and the home market was no different. Homebuyer preferences radically changed from the years before. In previous years, certain demographics (like millennials) flocked to metropolitan areas for work, but once the pandemic hit and the work-from-home trend blossomed, they fled these tech centers for the suburbs. As a result, corporations began purchasing and building new homes to keep pace. In 2021, the single-family rental market saw a massive spike, jumping up 40%, with companies like American Homes 4 Rent and Invitation Homes seeing double-digit rent growth.
The one major misconception about the investor-homebuying myth is that big, faceless companies are the largest force in buying houses. While large corporations certainly play a hand in shaping the market landscape, they only made up around 3% of American home sales in 2021 and only 1% in previous years. In reality, most home purchases in the investor space are made by smaller, localized groups. Everyone and their broker are trying to get into the real estate market. Today we see hedge funds, private equity firms, insurance companies, real estate investment trusts, and even mom-and-pop landlords taking a more active interest in rental housing.
When looking at the Wall Street companies buying up homes, you have a small list of corporations that have shaped this growing trend. One of the first companies to make waves in this market is Blackstone. Founded in 1985, Blackstone, or Blackstone Group, is an alternative investment firm based out of New York. Blackstone’s total capital of 2021 sat at $880 billion, over a third of which came from its real estate department. In 2012, Blackstone purchased Invitation Homes, a rental company owning around 80,000 homes. In 2019, Blackstone sold Invitation Homes, only to purchase Home Partners of America in 2021. Since then, Blackstone has been an active powerhouse in the American home market.
Other large companies in the American home market are J.P. Morgan Asset Management, Goldman Sachs, Mynd Management, Pretium, and American Homes 4 Rent. These companies have bought and rented out tens of thousands of single-family homes for the past three years. American Homes 4 Rent, for example, owned over 52,000 homes in 2019, operating in over 22 states, with the largest concentration in Atlanta, Georgia.
Another misconception of this myth is that homes are being bought equally across the United States. In reality, investment groups are far more focused on carefully monitoring trends that influence relocations, where those relocations bring homebuyers, and then purchasing homes in those areas. As such, areas with heightened economic growth are seeing the most interest from these investment companies. Specifically, states along the Sun Belt and Southeastern Coastline have seen the most home purchases. Certain states saw particularly massive jumps in activity, with Florida, California, and Arizona doubling their amount of investor purchases from 2020 to 2021.
Here is a quick rundown of the top 10 states with the highest investor share of sold homes in 2021 (Data provided by The Pew Charitable Trusts, CoreLogic, and Stateline):
|Position||State||Percentage of Homes Sold by Investors in 2021|
Besides burgeoning business, there are other appealing aspects to states in the Sun Belt, such as lower property taxes, more lenient laws regarding landlord and renter relationships, and fewer housing market regulations. Furthermore, many of these states have less restrictive laws regarding rent increases, evictions, zoning, or landlord responsibilities, making them an appealing choice for corporate investors. Combine this with the recent increase in relocation to the Sun Belt and East Coast, and it can be easy to see why corporations would be investing in home rentals in these states.
Unfortunately, the belief that corporations are buying up all the homes in America and raising housing prices holds some truth. However, not all aspects of the myth are true. For example, not all states are affected equally, and these corporations greatly favor single-family or starter homes over larger houses. However, there has undoubtedly been an increase in the number of homes bought and sold by investment groups over the years, especially since 2020.