Investors continued to snap up homes at a record rate at the end of 2021, buying $49.9 billion in homes in the last three months of 2021 alone.
In total, investors — which includes anyone from so-called mom-and-pop, part-time landlords to private equity giants — made up a full 18.4% of home sales in the fourth quarter, which is a record, according to Seattle-based Redfin Corp. (NASDAQ: RDFN).
Though not solely responsible for today’s ultra-competitive housing market, the growing dominance of cash-heavy investors in Q4 is making buying a house more challenging.
Billions have been raised to deploy into the single-family rental market — and related, but somewhat different, the build-to-rent business — but it’s not clear yet whether investors will keep seeing quarter-over-quarter gains in market share in 2022, said Daryl Fairweather, chief economist at Redfin.
There are a lot of variables at play, especially with the Federal Reserve expected to raise interest rates this year.
“That will cool down demand for housing,” Fairweather said. “At the same time, rents are going up, which makes it attractive for investors to buy houses (to rent).”
Newport Beach, California-based commercial real estate analytics firm Green Street in January found Institutions own about 3% of total single-family rental stock, meaning individual owners of one to two homes continue to represent the majority of single-family rental owners in the U.S.
Green Street found the four biggest single-family rental owners are Invitation Homes Inc. (NYSE: INVH), which owned 81,550 such units in January; Progress Residential LLC, which owned about 75,000; American Homes 4 Rent (NYSE: AMH), which owned 56,100; and Tricon Residential Inc., which owned 27,500.
Dallas-based REIT Invitation Homes in earnings this week reported a year-over-year revenue increase of 12.1%, to $520 million, in the fourth quarter of 2021. In fiscal year 2021, total revenues increased 9.5%, to nearly $2 billion.
American Homes 4 Rent, another REIT based in Calabasas, California, hasn’t reported Q4 earnings yet. But it added nearly 1,600 homes in Q3, for a total investment of more than $550 million.
It’s expected institutional ownership of single-family rentals will continue to grow, especially as more capital enters the single-family rental sector.
Still, while the single-family rental sector is becoming more institutionalized, investors of all types and sizes, including iBuyers, are also gaining market share, Fairweather said. Even after Zillow Group Inc.’s (NYSE: Z) much-publicized exit from the iBuying business last year, she said the vacuum Zillow left has likely already been filled.
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