Institutional investment in housing hits four-year low

by MPA06 Nov 2014
Institutional investors -- entities that purchase at least 10 properties in a calendar year -- accounted for 4.3% of all sales of single-family homes and condos in the third quarter, according to Realty Trac's Q3 2014 U.S. Institutional Investor & Cash Sales Report. The group's share is down from 5% in the previous quarter and down from 5.3% a year ago to the lowest level since the fourth quarter of 2010.

Meanwhile all-cash sales accounted for 33.9% of all sales of single-family homes and condos nationwide in the third quarter, down from 36.9% in the second quarter and unchanged from a year ago.

"Cash sales continue to be an important piece of the real estate puzzle right now, representing one in every three home sales nationwide in the third quarter of 2014 and helping to drive up U.S. median home prices 38% over the last two and half years," said Daren Blomquist, vice president at RealtyTrac. "As institutional investors and other cash buyers slow down their purchasing in many markets across the country, more traditional buyers -- including first-time homebuyers and move-up buyers -- will need to increasingly fill in the missing puzzle pieces to maintain the momentum of the housing recovery.

However, Blomquist said institutional investors are still actively purchasing single family rentals, but continue to gravitate toward markets where lower-end inventory is still available. "There has been a recent surge in cash buyers in some markets, often coinciding with either a rebound in distressed sales attracting bargain-hunting cash buyers or a booming job market engendering a competitive bidding environment where cash is king," he said.

Private-equity firms, hedge funds, real estate investment trusts and other institutional investors have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35% from the 2006 peak, according to Bloomberg.

Highest institutional investor share in Memphis, Charlotte, Columbus
Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of institutional investor purchases in the third quarter were Memphis, Tenn. (16.4%), Charlotte-Gastonia-Concord, N.C, (14.2%), Columbus, Ohio (12. 6%), Atlanta-Sandy Springs-Marietta, Ga., (12.5%), and Orlando, Fla. (11%).

Institutional investor share increases in Charlotte, Columbus, Orlando, Miami
Although Memphis documented the highest share of institutional investor sales in the third quarter, its 16.4% share was down from a 20.3%  share a year ago. The institutional investor share of home purchases was also down from a year ago in Atlanta, but increased from a year ago in Charlotte, Columbus and Orlando, bucking the national trend.

Other metro areas among the top 20 for institutional investor share with increases from a year ago were Miami, Fla. (8.6% compared to 6.3% a year ago), Tampa, Fla. (8.6% compared to 7.5% a year ago), Dallas, Texas (8.5% compared to 8.4% a year ago), Kansas City (7.4% compared to 7% a year ago), and Knoxville, Tenn. (7% compared to 4.5% a year ago).

The share of institutional investor sales increased from a year ago in eight states, including Iowa (8.4% compared to 3.6% a year ago), Ohio (5.9% compared to 4.1% a year ago), Maryland (4.4% compared to 3.5% a year ago), and Florida (7.2% compared to 6.4% a year ago).

Among the nation's largest metro areas, the biggest decreases in institutional investor share of sales were in Boston (0.6% compared to 1.5% a year ago), San Diego (1.4% compared to 3.7% a year ago), Los Angeles (1.6% compared to 3.9% a year ago), Minneapolis (2.6% compared to 4.9% a year ago), and Phoenix (6.6%compared to 11.7% a year ago).

"Institutional investors, who flooded the market a couple of years ago, are starting to sell their inventory for substantial gains," said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market. "Meanwhile, first-time buyers are still underrepresented because of affordability challenges in the Southern California marketplace."

Click here to read RealtyTrac's full report.

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