Business ownership of single-family rental homes has steadily increased across the country, with some areas seeing more than 40% of homes for sale gobbled up by an institution.
It’s a phenomenon that hasn’t hit the Lehigh Valley yet, but it is happening, say local realtors. What’s taking so long?
The reasons are myriad, but the main ones are location, location, location, and the relative lack of foreclosures in the Lehigh Valley, which allows businesses to rush in and buy single-family homes at a reduced cost. .
At least one Valley real estate agent specializing in rentals says it’s only a matter of time before they arrive.
Jack Gross, a realtor with Cassidon Property Management in Bethlehem, said the issue was raised at a recent brokers’ meeting with Greater Lehigh Valley real estate agents.
“One of the brokers mentioned that this is going to be a widespread thing across the country, and it’s going to happen here at some point, which I don’t doubt,” said Gross, who has more than 70 rentals from all shapes. and sizes. “But I don’t see that problem now that I know about it. I have seen reports in different parts of the country.
A recent report by the US House of Representatives Financial Services Committee found that the number of single-family homes purchased by these real estate companies has increased exponentially in recent years. The five largest owners and operators of single-family rentals have seen their stock grow by more than 27%, or more than 76,000 units, between 2018 and 2021.
After the Great Recession, the report said, business ownership of single-family rental homes has grown 3% per year since 2010, with the third quarter of 2021 showing the largest year-over-year increase in 16 years.
Prior to 2008, investors owned around 10 million homes, but none had more than 1,000 and many had fewer than 10 in their portfolios, with retail investors dominating.
Invitation Homes, one of the largest institutional investors in the country, says it now owns 80,000 homes.
A May report from the National Association of Realtors shows that institutional investors accounted for 13% of the residential sales market in 2021, with the median purchase price for institutional buyers typically 26% lower than state median purchase prices,
The five largest institutional investors — Invitation Homes, American Homes 4 Rent, FirstKey Homes, Progress Residential and Amherst Residential — own properties in multiple states, but none are in the northeast.
Tim Tepes, a real estate agent with Assist-2-Sell Buyers & Sellers Realty in Northampton, said these companies focus on locations in warm southern or western climates.
“Big companies like this are in the South, places with beaches and are popular places,” he said, “like Las Vegas, Arizona, Texas, Atlanta, Florida, La North and South Carolina.”
The reason is that real estate is cheaper there, Tepes said.
“A lot of people here are migrating south and there are more rental opportunities and prices are cheaper,” he said. “We see that a lot”
The congressional report found that in the third quarter of 2021, institutional investors bought 42.8% of homes for sale in metro Atlanta and 38.8% of homes in greater Phoenix.
These markets have seen a higher number of foreclosures, making it easier for investors to buy homes in the hundreds. A particular concern was that much of the sales were to areas with large minority populations.
“A 2018 study found that increasing institutional investment in [single-family rental] Homes in Atlanta from 2010 to 2015 were concentrated in older neighborhoods and were correlated with a greater concentration of Asian, Latino, and Black residents,” the report said. “A 2017 case study of Los Angeles County found that middle-income neighborhoods with higher percentages of black residents and lower home values were disproportionately impacted by increased investor participation in the housing market. SFR housing.”
In addition, according to the study, rents have increased along with eviction rates.
The average median gross rent in the top 20 zip code areas of the five companies was $1,259, about 13% above the national median or $1,096. In Atlanta, large landlords were 68% more likely than small landlords to file for eviction. Tenants also found it more difficult to contact larger companies, while smaller landlords may have a personal relationship with their tenants and try to find a solution.
They’re trying to get as much money out of as many units as possible, Tepes said. “Unfortunately, that drives people out of the area.”
The foreclosure factor may explain why the Lehigh Valley has not been seen as an expansion candidate for large institutional investors.
An April report from Greater Lehigh Valley real estate agents, using data from the Greater Lehigh Valley Multiple Listing Service, indicates that foreclosed/distressed homes have been a commonplace part of the Valley market for several years and that there are had a steady decline in percentage in the market. .
In 2021, distressed sales accounted for just 0.3% of home sales in the Lehigh Valley. That compares to 0.5% in 2019, the last full year before the COVID pandemic, and 1.4% in 2017.
While foreclosures are expected to increase in the Lehigh Valley in the near future as moratoriums imposed by the COVID pandemic have expired, Gross does not expect major flooding in the area that could attract the attention of institutional investors.
“We keep hearing, in some parts of the country, that there’s a phantom inventory of foreclosures that’s going to happen and so there’s a tsunami coming,” Gross said, “and I keep telling people I don’t see it I don’t know because appreciation rates being what they have been for the last three years, you can pretty much sell it to cover your debt before you lose it.
Gross said the Lehigh Valley is geographically blessed with its position on the east coast.
“Are we recession proof? No, but we have protections that other regions don’t have,” he said. “We have jobs that other regions don’t have.”
The Lehigh Valley also has an average median sale price – $280,000 – above the national average of $229,000.
The Congress report shows that institutional investors tend to buy homes in neighborhoods with lower house prices and higher rents. The average median home value for the top 20 zip code areas of the five companies was $198,766.
Morning Call reporter Evan Jones can be reached at [email protected].