Skip to content Skip to left sidebar Skip to right sidebar Skip to footer
Member Sign-In

Notices

Investors are Buying Fewer Homes Than Pandemic Peak, But Their Share Continues to Grow Amid Changing Housing Market

Rising mortgage rates are moving the housing market in a new direction since the onset of the Covid-19 pandemic-induced boom.

But what impact escalating interest rates will have on investors that buy homes to rent them out is to be determined, although first-quarter investor purchasing activity gives early indication that investors are slowing their pace of homebuying.

Seattle-based Redfin Corp. (NASDAQ: RDFN) found the number of homes purchased by real estate investors in the first quarter declined 11.5% from the fourth quarter of 2021 and 16.5% from Q3 2021. Despite that, investor purchases made up a larger share of the housing market, purchasing a record 20% of homes that sold in Q1, an increase of 19.2% from the end of 2021 and a15.3% annual increase.

That’s owing to a slowing housing market in the first quarter, which saw a decrease in overall home purchases nationally, according to Redfin.

Sheharyar Bokhari, senior economist at Redfin, said the reasons for fewer investor purchases in Q1 could vary but rising interest rates are likely a factor.

Whether investors or owner-occupiers are more sensitive to rising rates is something Thomas Malone, an economist at Irvine, California-based CoreLogic Inc., is watching closely. He said it’s just a guess at this point but he suspects investors might be more sensitive to that upward movement.

“Investors would be considering real estate amongst a broad set of asset classes to invest in whereas, for a homeowner, buying is more of a lifestyle choice,” he said. An owner-occupier may opt for a smaller home or one in a different neighborhood when faced with higher costs to buy a home, whereas investors could reallocate capital out of real estate.

Bokhari said the expectation is sellers aren’t going to be able to sell their homes as quickly as they have, especially as they did last year, which’ll result in price cuts. Investors may, therefore, be holding off to take advantage of better deals down the line.

Investors who purchase homes to flip them relatively quickly will likely also slow their activity, in anticipation of slower home-price appreciation, Bokhari said. Already, the share of iBuyers, or instant buyers, in the U.S. housing market has slowed. The 12,652 homes sold by homeowners using an iBuying service in Q1 represented 1.3% of all U.S. home sales, down from 1.7% in Q4 2021.

Hot investor markets still in the Sun Belt

Not much changed in the geographic makeup of where investors were most prolific in Q1.

Atlanta saw $2.7 billion in investor sales in Q1, making up 33.1% of all homes purchased by an investor that quarter, the most of any major metro area tracked by Redfin. Jacksonville, Florida, ranked No. 2, with $705.8 million in investor purchases in Q1 comprising 32.3% of that metro area. Charlotte, North Carolina, came in third, with $1.15 billion in home purchases by investors, or 32.2% market share.

Given all of the investor activity it’s seen, some homeowners associations have implemented or cracked down on restrictions to try and prevent investor activity in their neighborhood. Through piecemeal efforts, a growing number of communities have sought to put guardrails in place to combat such purchases.

In one Charlotte neighborhood, Berewick, at least seven homes owned by limited-liability company or limited partnership entities are currently available for sale. The entities are affiliated with American Homes 4 Rent (NYSE: AMH), an Agora Hills, California-based REIT that specializes in single-family rental homes.

Brian Hamelink, the listing agent, said his client decided to sell the homes because of changing restrictions in the neighborhood. A copy of the neighborhood’s community charter obtained by The Business Journals says owners in the neighborhood cannot collectively lease, or offer for lease, more than one unit at any time.

The investor-owned homes on the market in the Berewick neighborhood is an anomaly to what Hamelink said he’s seeing throughout Charlotte, even with rising interest rates.

“The appetite for homes in Charlotte is, right now, as great as it’s ever been,” he said. “Funds are in town, looking to build large portfolios. I don’t see the acquisition of homes slowing down.”

If there is some kind of pullback in home prices, which hasn’t been evident yet in a market like Charlotte, Hamelink said investor activity will likely only increase.

Nobu Hata, CEO of Denver Metro Association of Realtors, said during a media briefing this week the institutional buyer share of the broader Denver metro area is 14% higher than the national average, citing National Association of Realtors data. Rents are going up because of that.

Wendy DiVicchio, CEO of Las Vegas Realtors, also during the call said investors buying up homes have pushed rents for single-family rentals from about $2,000 to, now, $2,800 to $3,200.

(MInneapolis/ St. Paul Business Journal)

 

 

Reminder: Effective Date for 2022 Workers’ Compensation Advisory Council Legislation

But the situation in the Senate looks different, my colleague Blake Hounshell points out.
There are 10 potentially competitive Senate races this year, according to the Cook Political Report, and Democrats need to win at least five of them to keep Senate control. Democrats are favored in two of those 10 races (New Hampshire and Colorado) and Cook rates another five (Arizona, Georgia, Nevada, Pennsylvania and Wisconsin) as tossups.
If Democrats keep the Senate without the House, they still would not be able to pass legislation without Republican support. But Senate control nonetheless matters. It would allow President Biden to appoint judges, Cabinet secretaries and other top officials without any Republican support, because only the Senate needs to confirm nominees.
I’m turning over the rest of today’s lead item to Blake, who will preview the campaign for Senate control.
Senate Democrats are starting to see the opportunity to retain the Senate after the midterms.Tom Brenner for The New York Times
Author Headshot By Blake Hounshell

Editor, On Politics
When asked to share their candid thoughts about the Democrats’ chances of hanging onto their House majority in the coming election, party strategists often use words that cannot be printed in a family newsletter.
But a brighter picture is coming together for Democrats on the Senate side. There, Republicans are assembling what one top strategist laughingly described as an “island of misfit toys” — a motley collection of candidates the Democratic Party hopes to portray as out of the mainstream on policy, personally compromised and too cozy with Donald Trump.
These vulnerabilities have led to a rough few weeks for Republican Senate candidates in several of the most competitive races:
  • Arizona: Blake Masters, a venture capitalist who secured Trump’s endorsement and is leading the polls in the Republican primary, has been criticized for saying that “Black people, frankly” are responsible for most of the gun violence in the U.S. Other Republicans have attacked him for past comments supporting “unrestricted immigration.”
  • Georgia: Herschel Walker, the G.O.P. nominee facing Senator Raphael Warnock, acknowledged being the parent of three previously undisclosed children. Walker regularly inveighs against absentee fathers.
  • Pennsylvania: Dr. Mehmet Oz, who lived in New Jersey before announcing his Senate run, risks looking inauthentic. Oz recently misspelled the name of his new hometown on an official document.
  • Nevada: Adam Laxalt, a former state attorney general, said at a pancake breakfast last month that “Roe v. Wade was always a joke.” That’s an unpopular stance in socially liberal Nevada, where 63 percent of adults say abortion should be mostly legal.
  • Wisconsin: Senator Ron Johnson made a cameo in the Jan. 6 hearings when it emerged that, on the day of the attack, he wanted to hand-deliver a fraudulent list of electors to former Vice President Mike Pence.
Republicans counter with some politically potent arguments of their own, blaming Democrats for rising prices and saying that they have veered too far left for mainstream voters.
In Pennsylvania, for instance, Lt. Gov. John Fetterman, the Democratic Senate nominee, supports universal health care, federal marijuana legalization and criminal justice reform. Republicans have been combing through his record and his past comments to depict him as similar to Bernie Sanders, the self-described Democratic socialist.

Candidate vs. candidate
One factor working in the Democrats’ favor is the fact that only a third of the Senate is up for re-election, and many races are in states that favor Democrats.
Another is the fact that Senate races can be more distinct than House races, influenced less by national trends and more by candidates’ personalities. The ad budgets in Senate races can reach into the hundreds of millions of dollars, giving candidates a chance to define themselves and their opponents.
Democrats are leaning heavily on personality-driven campaigns, promoting Senator Mark Kelly in Arizona as a moderate, friendly former astronaut and Senator Catherine Cortez Masto of Nevada as a fighter for abortion rights, retail workers and families.
“Senate campaigns are candidate-versus-candidate battles,” said David Bergstein, a spokesman for the Democrats’ Senate campaign arm. “And while Democratic incumbents and candidates have developed their own brands, Republicans have put forward deeply, deeply flawed candidates.” Bergstein isn’t objective, but that analysis has some truth to it.
There are about four months until Election Day, an eternity in modern American politics. As we’ve seen from the Supreme Court’s abortion ruling and from the explosive allegations that emerged in the latest testimony against Trump, the political environment can shift quickly.
If the election were held today, polls suggests that Democrats would be narrowly favored to retain Senate control. Republican elites are also terrified that voters might nominate Eric Greitens, the scandal-ridden former governor, for Missouri’s open Senate seat, jeopardizing a seat that would otherwise be safe.
But the election, of course, is not being held today, and polls are fallible, as we saw in 2020. So there’s still a great deal of uncertainty about the outcome. Biden’s approval rating remains low, and inflation is the top issue on voters’ minds — not the foibles of individual candidates.

Minneapolis Fed Webinar on Construction Survey Results – Friday, May 6, 9-930 am

 

Hello Construction Partners—

I am in the analysis part of this effort, but wanted to let you know that I’ll be hosting a webinar on Friday, May 6, from 9-930 to discuss results. You should all be getting  more formal looking invite, and we’re hoping you will forward information on the event to your members so they can join. All of our webinars are always free.

https://www.minneapolisfed.org/events/2022/regional-economic-conditions-construction-sector-activity-may

Somewhere around the May 6 (+/-) I will also be sharing more detailed results with all of you.

Let me know if you have any questions. Hope everyone is well, and your members gearing up for a great spring and summer season.

Best, Ron

Ron Wirtz
Regional Outreach Director

FEDERAL RESERVE BANK OF MINNEAPOLIS
Pursuing an economy that works for all of us

W 612-204-5262     M  612-430-4917
@RonWirtz I minneapolisfed.org I LinkedIn I Twitter

Walz Blasts Legislature Over Unemployment Insurance Dispute

Gov. Tim Walz sharply criticized the Minnesota Legislature on Wednesday for failing to break its impasse over an unemployment insurance tax increase that businesses are already starting to pay.

The Democratic governor blamed both the Senate Republican and House Democratic majorities, saying it’s “absolutely ridiculous” that they didn’t reach a deal soon after the legislative session began in January. He said they need to pick up the pace with the May 23 adjournment coming up in just over four weeks, and said he’ll propose a path forward in his State of the State speech on Sunday.

Employers across Minnesota started getting bills for higher first-quarter unemployment insurance taxes soon after legislative leaders failed to agree by the March 15 deadline for heading off an automatic increase.

The increase kicked in because the state must replenish its unemployment insurance trust fund, which has been depleted by the pandemic. The state can tap over $1 billion in federal COVID-19 relief money and the state’s $9.25 billion budget surplus to raise the necessary $2.7 billion. But House Democrats have made a tax rollback contingent on Senate Republicans agreeing to $1 billion in “hero pay” for frontline workers instead of the $250 million target all sides set last year.

Walz said lawmakers could have settled it all back in January.

“This should have been the easiest deal in Minnesota political history,” Walz said during a visit to a Cub Foods supermarket in north Minneapolis to talk about his tax rebate proposal.

Doug Loon, president and CEO of the Minnesota Chamber of Commerce, told reporters at the Capitol that his group shares the governor’s frustrations.

Democratic House Speaker Melissa Hortman has said the real deadline is April 30, when the first tax bills reflecting the increase come due.

Walz and Loon both said some companies have already paid those bills. And Walz said he hopes the frustrations of those employers prods lawmakers into a deal.

Loon said the businesses he represents are universally reporting double-digit or higher increases in their unemployment insurance tax bills when they’re already struggling to be competitive.

“Other states have fixed this. And Minnesota as an outlier state needs to be competitive,” Loon said. “If we don’t fix this, Minnesota businesses are at a disadvantage.”

Walz spoke as the Chamber coincidentally held its annual lobbying day at the Capitol. Loon said around 100 of his members fanned out to meet with their local lawmakers and tell them how the tax increase was affecting them.

(Associated Press)