A new analysis of institutional home buyers and their impact on single-family properties conducted by the National Association of Realtors Research Group found that tis segment of buyers comprised 13% of the residential sales market in 2021, with the median purchase price of institutional buyers on average 26% lower than the states’ median purchase prices.
With the inventory of existing-homes available in March 2022 equivalent to just two months of supply, well below the desired level of six months, the home sales and rental markets continue to suffer from a huge undersupply of both for-sale and for-own units.
For their analysis, “Impact of Institutional Buyers on Home Sales and Single-Family Rentals,” NAR defined institutional buyers as “companies, corporations, or limited liability companies (LLCs),” and researched deed records data to conclude that institutional buyers purchased 13.2% of the nation’s residential properties in 2021, up from 11.8% in 2020. It was found that institutional investors made up a greater share of the market in counties where the number of homes available for sale was tighter.
“In counties where the investor share was higher than the national average, listings were down 7% year-over-year as of March 2022, and in counties where the investor share was lower than the national average, listings were down just 4% year-over-year,” said the report.
Regionally, Texas led all states with the highest share of institutional buyers at 28%, followed by Georgia with 1; 9%, Oklahoma and Alabama with 18%, and Mississippi with 17% rounding out the top five.
NAR’s Research Group (and authors of the report) consists of Dr. Lawrence Yun, NAR Chief Economist and SVP; Jessica Lautz, NAR Director of Real Estate and VP of Demographics and Behavioral Insights; Gay Cororaton, NAR’s Senior Economist and Director of Housing and Commercial Research; Nadia Evangelou, NAR’s Senior Economist and Director of Forecasting; Hua Zhong, NAR’s Data Scientist and Manager of Housing Statistics; Meredith Dunn, NAR Research Manager; and Anna Schnerre, NAR Research Associate, Business Insights. NAR’s Research Group conducted a survey of Realtors to local market information about institutional buyers and collected responses from 3,644 members.
For the report, NAR examined that factors that attracted institutional investors to particular markets nationwide, using data from the American Community Survey which examines the motivation for home sellers to sell to institutional buyers, the impact of institutional investors on home prices and rents, and the quality of service offered by institutional landlords relative to “mom-and-pop” landlords.
A second major finding by NAR was that institutional home buyers tend to purchase in markets with rising household formation, strong housing and rental markets, high income markets, but also with a high density of minority groups (especially Black households).
Ten factors that NAR’s Research Group concluded were likely to attract institutional investors to a market area, included:
- Areas with higher household formation;
- Areas with high density of minority groups, especially Black households;
- Areas with a high density of renters;
- Areas with a high density of the Millennials;
- Areas of high income and education;
- Areas where many people are moving into the area;
- Areas with fast rent growth;
- Areas with fast home appreciation;
- Areas with fast home sales growth; and
- Areas with lower rental vacancy rate.
“Specifically, in areas with a higher share of institutional buyers than the national average, there are twice as many Black households as areas with a lower share of institutional buyers,” said NAR’s study. “In areas with higher share of institutional investors, renter accounts for 30% of households on average compared to 27% in areas with lower share of institutional investors. The implication is that while institutional buyers who purchase existing-homes to convert to rental provide rental housing, this takes stock away for future homeowners.”
NAR also found that institutional investors had a larger market presence due and offer cash and services that home sellers prefer.
Click here to read more on NAR’s “Impact of Institutional Buyers on Home Sales and Single-Family Rentals.”