About Institutional Homebuyers
For the past two years, the housing market has continued to heat up, with bidding wars for homes boosting prices. Part of the mix of prospective buyers are institutional buyers, or companies that buy the properties to lease them out or fix them up and sell them.
One reason there’s a shortage of available homes to buy across the U.S. is that corporate investors are snapping up single-family homes to use as rentals or to flip back onto the market after making improvements. Institutional homebuyers (companies, corporations, LLCs) have always been around but a new report by the National Association of REALTORS (NAR) found their market share rose 84% in 2021. Based on deed records, institutional homebuyers accounted for 15% of residential purchases in 2021.
The record low interest rates of 2020 and 2021 and rising inflation – 8.5% in March 2022 – are ideal incentives for institutional homebuyers to turn to residential real estate for asset acquisition as a hedge against inflation. They buy properties to turn into rentals where rents can be raised annually. Investors look for dense populations with fast growth, fast rent growth and home appreciation, fast home sales volume, and low vacancy rates. NAR also found they look for areas with higher incomes and education, more young people and minorities, and a high density of renters.
In those areas where institutional investors are more than 30% of market share, the number of household formations grew 11%, average rents increased more than 30%, home prices rose 40% or more, and home sales rose 70%, all over the last decade.
The top five states with the largest market share of institutional homebuyers were:
- Texas (28%),
- Georgia (19%)
- Alabama (18%)
- Mississippi (17%)
Closely followed by:
- Florida (16%)
- Missouri (16%)
- North Carolina (16%)
- Ohio (16%)
- Utah (16%)
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