Single-family landlords are ready to pounce on potential discounts as higher mortgage rates sideline regular buyers.

Surge in Interest Rates Creates More Risk for Homebuilders & More Partnerships with Institutional Investors

Even before the Federal Reserve began raising interest rates by 0.5% and now 0.75% and “regular” homebuyers were stretching to qualify for a home mortgage, some of our country’s largest homebuilders were turning to institutional investors to help them maintain their work crews and add housing inventory amid slower consumer demand.

Last year, Lennar Corp. partnered with Centerbridge Partners and Allianz Real Estate to build and acquire more than $4B worth of single-family rental homes.  PulteGroup Inc. agreed to develop 7,500 single-family rental homes for Invitation Homes, Inc.


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According to Bloomberg, American Homes 4 Rent, the third-largest single-family landlord in the country, is taking daily calls from potential home sellers, including national builders.  David Singelyn, CEO of American Homes 4 Rent, said that homebuilders were already offering small concessions on deal terms while holding the line on price.  With the new 0.75% interest rate hike, Singelyn expects that hard line on home prices to soften.

Singelyn said, “We’re going to see those prices come down (since) the landlord is sitting on a significant amount of investable cash and funds, and we can take advantage of those opportunities.”

Sellers & Homebuilders Accrue Costs When Market Slows

The longer it takes for a house to sell, the worse it is for the homebuilder and/or seller.  Why?  Because the seller has to pay the costs of the for-sale house longer and the homebuilder has to pay for the costs of the homebuilding and labor longer.

Sure, the Fed’s efforts to help calm housing market mania by raising interest rates will slow home price gains and grow inventory over time.  But, for sellers and homebuilders, selling houses to property investors offers better  and faster economics than the retail market.

According to Bill Wheat, CFO with DR Horton Inc., an institutional investor is “…a buyer looking for an income stream…so you can certainly underwrite to a higher valuation on land for single-family rental.”

About-Face for Builders Partnering with Investors

With local and regional builders looking for new buyers as interest rates soar for individual housing consumers, more and more sellers and homebuilders are hoping to offload their one or two single-family homes or even their entire tracts of newly built single-family homes.

Bruce McNeilage, CEO of Kinloch Partners, said, “These are the same builders (and sellers) that over the last few years have not been willing to sell to investors.”

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Thanks to Bloomberg.

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