In recent years, institutional single-family home buyers like Invitation Homes and American Homes 4 Rent have played a significant role in the U.S. housing market. Their entry into the market following the 2007 housing crash and aggressive buying during the pandemic created waves of change in the rental industry. However, a noticeable shift has taken place as the once-booming institutional homebuyer market seems to be experiencing a freeze.
In the aftermath of the 2007 housing crash, national home prices hit bottom, offering institutional buyers like Invitation Homes an ideal opportunity to acquire properties at rock-bottom prices. Backed by Blackstone then, Invitation Homes rapidly expanded its single-family rental portfolio, amassing around 24,000 homes within a year.
Fast forward to the pandemic, and Invitation Homes found another golden opportunity. Soaring rents and home prices, combined with low borrowing costs and easy access to capital, created a favorable house-buying environment. During the third quarter of 2021, arguably the pinnacle of the pandemic-induced housing boom, Invitation Homes purchased 1,684 homes, continuing its aggressive expansion.
However, the pandemic-era high has now waned. Many institutional homebuyers, including Invitation Homes and American Homes 4 Rent, have shifted gears and become net sellers in the housing market, according to a report in Fortune. According to recent reports, Invitation Homes sold off more homes (378) than it acquired (276) in the second quarter of 2023, marking the third consecutive quarter of being a net seller. Similarly, American Homes 4 Rent also experienced a decline in its portfolio, selling off more homes (666) than it purchased (312) in the first quarter of 2023.
An analysis by John Burns Research and Consulting revealed that institutional investors who own over 1,000 homes bought 90 percent fewer homes in the early months of 2023 compared to the same period in 2022.
The primary reason behind the institutional homebuyer pullback lies in the changing financial landscape. Interest rates, house prices, and rents have played a significant role in shaping investors’ decisions. After a period of historically low interest rates, the Federal Reserve rapidly increased rates at the fastest pace in over four decades, impacting the potential returns on each additional home purchase.
Institutional buyers have become more cautious, analyzing the financial viability of adding more homes to their portfolios. With the costs of borrowing increasing and housing prices remaining elevated, the returns on investment may not be as attractive as they once were.
While the current trend points to a slowdown in institutional homebuying, it doesn’t necessarily mean the end of their influence on the housing market. Invitation Homes’ recent acquisition of a portfolio of nearly 1,900 homes worth approximately $650 million suggests that it may resume its buying activities in the second half of 2023.
Furthermore, Bloomberg’s report about Starwood Capital Group potentially selling around 2,000 single-family rentals to Invitation Homes indicates that institutional buyers may still be active in the market, even if their overall net ownership of U.S. homes doesn’t increase significantly.
The recent shift in the institutional homebuyer market marks a significant change in the U.S. housing landscape. However, their influence on the housing market is far from over, and as economic conditions evolve, we may see them adapt their strategies and resume their role as key players in the rental industry.
