Low Inventory is not Only Affecting Individual Buyers, But Landlords Too.
Just as Wall Street was on the path of developing a new income stream - buying up private residences across the country to rent, hazard signs began to appear – high mortgage rates and a dearth of properties joined to throw a wrench into the plan.
It isn’t just regular Americans who are having trouble buying homes nowadays, Wall Street’s rental giants are also facing high borrowing rates and a shortage of available properties limiting their ability to grow at the same time as rents are climbing.
Prices have pushed past what big landlords such as American Homes 4 Rent (AMH) and Invitation Homes (INVH) can pay and still meet profit targets. Though the computers of these companies are still scanning for homes they can buy and realize a profit when renting, they are facing other problems besides rates and a shortage of homes – individual buyers are also stepping up (which raises asking prices), competing for the relatively few homes on the market.
But conversely, there has hardly been a better time to be a big landlord of single-family homes. Record home prices and high rates have combined to raise rental prices nationally, as many people are forced to rent rather than buy. As a result, many Wall Street stock pickers expect shares of AMH and INVH to rise, outpacing the broader market. In short, the properties already owned by the big firms are doing fine – the problem is trying to expand their holdings.
These big landlords and others began scooping up homes after the Covid lockdown. As a result, 25% of homes bought in Miami, Houston, and Phoenix were being bought by someone who will never live there.
But now, as these new forces of low inventory, high rates and competition from private buyers have coalesced, many of these big landlords are selling off properties, trying to cash-in on high prices. INVH, for example, is selling off homes that are yielding less than 4% and buying government bonds that often yield 5%.
Executives at AMH and INNVH actually sold more homes than they bought in 2023. These executives explain that they are amassing money to spend when masses of homes are finally back on the market by motivated sellers and prices fall. INVH expects to continue buying in the near to medium term when they believe rates will fall and many more homes will come on the market.
Additionally, large homebuyers are realizing that in the current market it is cheaper to buy land and build a home from the ground up rather than buy an existing home due to the elevated prices therefore some of these companies are taking the home-building route.
AMH, for example, is planning to build 2,200 homes in the near term and has bought land for 13,000 more.
Indeed, the real estate market is always dynamic, changing from year to year in ways we can’t always predict.