One of the most persistent lies about U.S. economics post-COVID-19 is that Wall Street has been a major buyer of homes in America and that’s the reason home prices have escalated out of control. The role of investors in the housing market is back in the news again, but I want to look at this topic from a different angle.
Коталити data recently showed investors making up over 30.7% of home sales — the highest share on record. On the other hand, the latest отчет о продажах существующих домов из Национальная ассоциация риэлторов shows the percentage of investors falling year over year from 16% to 14%. What I want to discuss today isn’t about the exact percentage; instead, it’s about identifying the major player in the investment landscape. Surprisingly, it isn’t БлэкРок, Blackstone or any other Wall Street firm. It’s actually the everyday individual investors, often referred to as “mom and pop” investors.
Unfortunately, these smaller investors rarely receive the recognition they deserve for their financial contributions to the housing market.
Mom-and-pop investors run the show
Mom-and-pop investors have run the show as the highest percentage of investors for as long as I can remember. Just imagine if we didn’t have these smaller investors increasing supply in the marketplace. The CPI inflation data that we are all trying to contain could have been higher for decades, as shelter is over 40% of the index. As we can see in the data below, the percentage of large institutions buying homes has always been small, but mom-and-pop investors have been the largest share of investor buyers for years.
However, with higher ставки по ипотечным кредитам, even mom-and-pop investors can feel the pinch as they finance some of their purchases.
Primary-residence mortgage buyers run the show in America, so even though the percentage of investors has grown with this data line, the housing market is more impacted by primary-residence homebuyers than investors. Housing inventory has returned to the low levels of 2019 in the latest existing home sales report, as mortgage demand from primary residence homebuyers has been suppressed.
Also, the homeowner vacancy rate percentage grew recently as well.
Investor percentage share
Cotality’s investor percentage data line differs from other sources, as I cited above. However, you can see an increase in the last few years in the percentage of investors. I would personally chalk this up to a denominator issue, meaning we just have fewer primary-residence homebuyers, and this is why this data line has grown to over 30% while the NAR’s data is down toward 14%.
Now, one of the positive stories in America is that with the growth in rental supply, the rental vacancy data has increased, as we can see below. Over 40% of CPI inflation is shelter, and the best way to deal with inflation is always supply, which means real wages get better for Americans when the growth rate of rent decreases.
You can see the improvements we have seen below, even with the outdated CPI shelter index. We have made progress here, folks.
One question I have always gotten for years is: Why don’t we give tax breaks to investors so they can sell all those homes and add inventory to the marketplace? The reason this never happens is that you would be kicking renter families out of their homes into a lower supply rental market, which by itself is very inflationary. The remaining landlords would get to charge higher rents. You can see why I love seeing rental supply from investors!
Заключение
It’s easy to blame investors for the low inventory in the housing market, but the reality is that the largest group of homebuyers in America — Millennials — are the ones who have been responsible for taking homes off the market. Since 2013, Millennials have consistently accounted for the most significant percentage of homebuyers in the United States, except when mortgage rates have been at 7% or higher.
Additionally, a growing rental vacancy rate can help combat inflation, which is why I support a class of people who contribute to the supply in the marketplace. So, while headlines that say investors are buying over 30% of homes can spook people, this narrative isn’t necessarily doom and gloom. After all, how can we blame our neighbors for adding rental supply to the market and helping to keep inflation in check?
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