Home prices are rising, new home construction is ebbing and demographic shifts are driving down homeownership rates to the lowest level in half a century. As a result, the nation is becoming a country of renters — and landlords. According to a Bloomberg report, in 2016, 37 percent of homes sold were acquired by buyers who didn’t live in them, according to tax-assessment data compiled in a new report published by Attom Data Solutions and ClearCapital.com Inc. That number may include second homes, or properties acquired by investors who seek to fix up old homes and resell them at a profit. But it’s also a strong indication that landlords are playing a larger role in the U.S. housing market. To some extent, they’re focusing their resources on cheaper markets, because the profit margins are better at lower price points, said Daren Blomquist, senior vice president at Attom Data Solutions.
“On one hand, landlords are filling a need that exists because of the low homeownership rates. They may also be crowding out folks that want to be homeowners but can’t compete with investors.”
Trends on Wall Street in the wake of the foreclosure crisis led to an increase in homes purchased by landlords, as private equity firms bought thousands of cheap homes. In the ensuring years, as Wall Street backed off, smaller investors picked up the slack, aided by tools developed to help big investors find, finance, and manage rental properties. Smaller investors — particularly those who have already paid off their mortgages on the homes they live in — see rental properties as an attractive way to save for retirement. Wally Charnoff, CEO of RentRange Data Services, said 2017 looks bright for single-family rental investors.
“We are seeing the percentage change begin to lessen while rents continue to increase, which should ultimately stabilize demand, keeping vacancy rates down. It remains important for investors to look at stability within a market, focusing on the market’s activity over time to ensure there is a good balance – low historical volatility with a current upswing.”
However, the paradigm may already be changing. Investors looking to buy at the bottom of the market to get the biggest returns on their investment when they sell may already have missed the opportunity. They are left to scramble to find the best markets to invest in given current market trends. This can be a challenge and will leave many investors buying property and holding it rather than doing a quick sell to make a profit. Attom’s Blomquist noted five factors — in addition to potential returns on investment — which can be influential to an investor’s analysis before deciding to enter a market: vacancy rates, homeownership rates, wage growth, a high population of millennials and the level of competition from institutional investors.
“After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again. Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single family homes — one in every four single-family homes — these single family rental investors will be an important and likely growing force in the real estate market for years to come.”