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0 pointsctoth4mo ago0 comments

Ownership share is a stock. Prices get set by flow - transactions. Housing is a thin market; maybe 5-6% of homes change hands in a given year. Price discovery happens at that transaction layer.

Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier. That's the market where we first-time buyers actually compete.

In some metros it's more concentrated.

Atlanta: ~30% of single-family rentals corporate-owned.

Charlotte neighborhoods in 2022: 50%!!! of sales to institutional buyers.

So for your 1-2-3... maybe something like?

1. Institutional buyers concentrate in starter homes where they're 29% of transactions, not 3% of stock

2. Target metros/neighborhoods go higher still

3. Real estate uses comps-based pricing - their winning bids propagate to surrounding valuations

The mechanism isn't inventory control, it's just a buyer with a different utility function (rental yield vs owner-occupancy) systematically outbidding price-sensitive first-time buyers. In a thick market that gets arbitraged away. In a thin market with sparse comps, each transaction is a price-setting event.

The St. Louis Fed found institutional presence specifically increases price-to-income ratios in the bottom tier.

If you're evil corporate Landlordman You don't need to affect the whole market. You just need to cut off the bottom rung of the ladder.

Is this Trump move the right one? No frickin idea! But I do think we need to reckon with what's actually happening to first-time homebuyers. I bought a place in Englewood Co last year and ... it was pretty rough.

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tptacek4mo ago

Whoah, hold up, your (3) is doing a lot more work than you think it is. Comps matter but they don't literally break the market:

* They impact listing prices but not necessarily clearing prices.

* They assume all the sellers, who are not corporate investors, can mechanically anchor off those inflated comps, without factoring in buyer budgets and carrying costs.

Real estate is slower than most financial products, but it's still an actual market. You can't just buy a tiny fraction of the inventory at an inflated price and assume the whole rest of the market will follow you.

ctothOP4mo ago

Reread my #3 in the context of "rental yield vs owner-occupancy."

I'm not saying comps magically anchor prices. I'm saying institutional buyers ARE the clearing prices, because they are anchored to "how much can I rent this out for" whereas first-time homebuyers are anchored to "how much can my mortgage cover?" which are different questions.

29% of transactions, not 3% of stock.

Those become the comps. There's less of a gap for "but buyers won't pay that" because the institutions *are the buyers. The call is coming from inside the housing market.

gusgus014mo ago

I'd actually just say that comps magically anchor prices in the constrained market we've been experiencing. As a person who was looking to buy a few times over the last few years, comps strongly affect appraisals which affects whether a company will issue a loan for the house (appraisers actually send you the houses they based their appraisal on). Plus realtors base their understanding of the market on comps when they try to help you form your offer. And of course sellers will look at comps when deciding what to ask for and whether to accept your offer.

Now this only really works in constrained markets, but intrinsically there's always a time constraints in buying (our lifetime of course, but also life events and lease renewals and er ). There's of course also selection constraints because of the aforementioned time constraints, and location, and whether new construction in happening within those.

Saying "they impact listing prices but not necessarily clearing prices." might be logically consistent, but is disconnected from the reality of the housing market.

BizarroLand4mo ago

All of you are assuming that buyers are rational, as if pump and dump in crypto was somehow isolated to the online world and not possible in the housing market. You don't have to have complete market capture to make that happen. All you need is to have enough volume that it causes potential buyers and sellers to play along.

If you're big enough, you can cause prices to ripple, get others to lose rationality and buy in on the ascent as you cash out and leave everyone else holding the bag for the crash.

slyn4mo ago

Respectfully, I think 'individuals' is doing a lot more work in GP's 'But most of the "investors" buying up property are individuals purchasing investment properties.'

The average 21+ US resident may own 2+ properties but I'd be surprised if the median equivalent owns 1. It kinda hides the equivalent of the top x% of individuals owns y% of the stock market where y is unreasonably disproportionate to most.

bruce5114mo ago

I'll add one more data point to the thread;

The timing and pricing of investor selling is different to residents selling.

Residents sell (mostly) for reasons other than profit. They might be moving up, or moving away, or whatever. There's some pressure to "get it done" so they can move on. They can't really afford to "time" the market.

For investors there's much more "buy in the down, sell in the up". Except that it's been going up for a while, so there's no motivation to sell at all. It would be uncommon for them to accept a loss. Even unoccupied it's (mostly) better to hold rather than sell at a loss.

As mentioned elsewhere, overall market penetration by investors differs wildly by market, and segment. So 3% overall might sound low, but 20% of a dwelling type in a specific market is plenty to alter market forces.

I say this as someone who has owned property as an individual, and also worked in a business that invested in property.

WalterBright4mo ago

> there's no motivation to sell at all

There's a huge motivation - the time value of money. And all the costs of having the house sit there not earning money.

An $800,000 house costs you $150/day in lost income.

bruce5114mo ago

Returns are better on the lower end of the market, and demand for rent there is higher. Which is why most residential investment is at the bottom end, not the top end.

In most markets I'm guessing an 800k house is at the higher end of the market.

That aside, housing portfolios always plan for a certain amount of unoccupied space. It's built into the model. (That's partly why small investors who own 1 or 2 properties get hit harder by this.)

Equally, even if the house is empty, there's usually some capital gain going on.

Investing in property is a long-term investment. The cost of buying, or selling is very high. So it's about getting quality units, in the right market space, and then leveraging that for a decade or more.

Yes there are lemons. And yes they'll get sold, perhaps at a loss. But being unoccupied for a bit doesn't make it a lemon, and being unoccupied won't necessarily trigger a sale.

Institutional investors are much more experienced and thus also a lot more likely to not buy lemons in the first place. Most "mom and dad with a second property" investors either inherited a place, kept an earlier property they lived in, or bought another property in their own neighborhood. They're typically gonna make some mistakes along the way.

pixl974mo ago

>but it's still an actual market

It depends on the swing of the market if it's a buyers or sellers market.

In the past there was far more spread in housing prices. These days real estate agents tend to follow a few market making sources for setting those prices, along with personal home sellers looking at 'internet prices'.

>inventory at an inflated price and assume the whole rest of the market will follow you.

When you target particular areas you absolutely can.

kgwgk4mo ago

> Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier.

Not true. That 29% is “investors”. Only one fifth of those transactions are from “institutional investors”. It’s mostly evil non-institutional investors, who also own ~97% of single-family rentals.

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tptacek4mo ago

Whoah, hold up, your (3) is doing a lot more work than you think it is. Comps matter but they don't literally break the market:

* They impact listing prices but not necessarily clearing prices.

* They assume all the sellers, who are not corporate investors, can mechanically anchor off those inflated comps, without factoring in buyer budgets and carrying costs.

ctothOP4mo ago

Reread my #3 in the context of "rental yield vs owner-occupancy."

29% of transactions, not 3% of stock.

Those become the comps. There's less of a gap for "but buyers won't pay that" because the institutions *are the buyers. The call is coming from inside the housing market.

gusgus014mo ago

Saying "they impact listing prices but not necessarily clearing prices." might be logically consistent, but is disconnected from the reality of the housing market.

BizarroLand4mo ago

If you're big enough, you can cause prices to ripple, get others to lose rationality and buy in on the ascent as you cash out and leave everyone else holding the bag for the crash.

slyn4mo ago

Respectfully, I think 'individuals' is doing a lot more work in GP's 'But most of the "investors" buying up property are individuals purchasing investment properties.'

bruce5114mo ago

I'll add one more data point to the thread;

The timing and pricing of investor selling is different to residents selling.

I say this as someone who has owned property as an individual, and also worked in a business that invested in property.

WalterBright4mo ago

> there's no motivation to sell at all

There's a huge motivation - the time value of money. And all the costs of having the house sit there not earning money.

An $800,000 house costs you $150/day in lost income.

bruce5114mo ago

Returns are better on the lower end of the market, and demand for rent there is higher. Which is why most residential investment is at the bottom end, not the top end.

In most markets I'm guessing an 800k house is at the higher end of the market.

That aside, housing portfolios always plan for a certain amount of unoccupied space. It's built into the model. (That's partly why small investors who own 1 or 2 properties get hit harder by this.)

Equally, even if the house is empty, there's usually some capital gain going on.

Yes there are lemons. And yes they'll get sold, perhaps at a loss. But being unoccupied for a bit doesn't make it a lemon, and being unoccupied won't necessarily trigger a sale.

pixl974mo ago

>but it's still an actual market

It depends on the swing of the market if it's a buyers or sellers market.

>inventory at an inflated price and assume the whole rest of the market will follow you.

When you target particular areas you absolutely can.

kgwgk4mo ago

> Institutional investors own ~3% of single-family rentals nationally. But per CoreLogic they're 29% of purchases in the starter home tier.

j / k navigate · click thread line to collapse