America for Rent? Why America's Housing Affordability is Getting Worse

In 2021 over 1,000,000 home buyers were cheated out of buying a house by big investors.  How bad is it?  Well, unfortunately, it looks like it’s getting worse, as we can see from this post by Commercial Observer, “Nearly One in Five US Homes Sold In Q4 Bought by Institutional Investors!”  By the way, those investors are actually big corporations – not mom-and-pop investors!  

Ok, so investors snatching up homes from home buyers is something I’ve been watching closely over the past few years.  Unfortunately, it’s getting much worse, and the trend is growing like wildfire in a dried-out prairie.   

In Early 2022, I listed a house for one of my clients, and something happened that I’d never seen before.  It wasn’t the 18 offers we received in a day of listing.  We all know about the massive housing shortage plaguing the already strained real estate market right now.  Even though many of the offers were much higher than the list price, that didn’t surprise me.   No, what set off my alarm bell just like my 4:30am alarm to wake up in the morning, that just gets louder and louder until I finally drag myself out of bed to turn it off.  Eight of those offers came from big investors.  To be honest, before then, I’d never seen so many corporations make an all-cash, above-list price offer for a house!  I mean, it’s just crazy!  

Quick note… No, the seller did not accept any investor’s proposal despite the money tossed in their direction.  Good people exist in this world, just like the seller who recognizes home buyers' challenges and chooses to accept a real person’s offer, not enrich a corporation.  To that first-time homebuyer, it positively changed their life.  We wish you many happy years in your beautiful new home!

So, with mortgage interest rates going up and home prices to match, why are investors in the housing market right now?  What’s their angle?  Investing in real estate right now seems counterintuitive and counterproductive for investors who believe in the buy low, sell high strategy.  So, what’s their endgame?

I knew I needed to go into recon mode to hunt down the details to get to the bottom of this.  FYI… No omission will hide or slide when a Marine is on a mission!  Honestly, it felt like I was becoming an investigative journalist in the process, like Lisa Ling with her documentary series “This Is Life.”  If you haven’t seen her show, I highly encourage you to check it out sometime.  It’s brilliant!

Anyhow… Every lead I followed took a bounce down a new rabbit hole.  So, I took a step back to gain clarity and designed a game plan to share the volume of research I did with you as succinctly as possible.  So I’m going to share the technique I used to prepare you for what comes next.

I found by focusing on 5 fundamental questions, you’ll gain insight into: 

1.  What is the situation?

2.  What is the motivation?

3.  Who are the key players?

4.  How are they getting the money, and what is their strategy?

5.  And most importantly, how will this affect you?

The Situation

So, let’s begin… What is the situation? 

Both first-time home buyers and home buyers are being forced out of the real estate market by large investors backed by powerful corporations with billions, yes, that’s with a B, billions of dollars to spend.  These corporations, in many cases, are bidding above list price with all-cash offers in an attempt to elbow out first-time homebuyers, as first reported by Reuters.   

Perhaps you were one of the buyers that were priced out too.  As one of our home tribe members, April, says: “The housing market is insane.  Even as a federal employee making a decent wage, I still have no hope of being able to buy a home anytime soon.  Even the rental market in the Denver Metro is out of control.  My focus is just paying off debt and saving what I can.  Maybe by 2024, I can hope to buy a house…” 

April, I feel your pain, my friend.  And I feel the pain of the over 1M home buyers priced out by investors last year! 

But why would multi-billion-dollar companies be willing to invest in real estate right now?  We all know interest rates are on the rise.  In addition, we currently have record-low inventory plaguing the market and super-inflated home prices.  For all of these reasons, one would think now is not a good time for investors to make a property grab like Elon Musk grabbing land in Austin, TX, around his new Gigafactory! 

How bad is it?  Remember earlier in this post, I shared with you that over 1m homebuyers were cheated out of buying a house in 2021? 

Yeah, it’s time to back up the facts with the details.  To do that, let’s recap the quarterly reports of investor home purchases as tracked by Redfin.  

Redfin defines “an investor as any institution or business that purchases residential real estate.”

In the 1^st quarter of 2021:  Investors accounted for 14.9% of homes purchased.  To say it another way, investors bought about 1 of every 7 US homes for sale during the 1^st quarter. 

In the 2^nd quarter of 2021:  Investors purchased 15.9% of the available homes or roughly 1 in every 6 homes for sale, wrapping up the 2^nd quarter.

In the 3^rd quarter of 2021:  Redfin initially reported that investors bought 18.2% of the total homes for sale.  They later revised the 3^rd quarter rate to 17.4%.  In the same post, Redfin Senior Economist Sheharyar Bokhari said, “Increasing home prices fueled by an intense housing shortage have created opportunities for investors to reap big profits….” Hold that thought.

Sheharyar says, “Those same factors have pushed more Americans to rent, which also creates opportunities for investors because investors typically turn the homes they purchase into rentals and can now charge higher rents.” 

Talk about living between a rock and a hard place.  I’ve been there before, and I genuinely feel your pain.  I know first-hand how much it really sucks to rent when you really want just to buy a home of your own to live your best life.  It sounds like Bokhari gets it, too, when he says, “with cash-rich investors taking the housing market by storm, many individual homebuyers have found it tough to compete.”     

We’ll talk about who these investors are and where they are getting all those billions of dollars in a moment.  For now, let’s keep going.

In the 4^th quarter of 2021:  Investors acquired 18.4% of the total homes sold in the 4^th quarter. 

So, now it comes down to some simple math to average the number of homes investors hi-jacked from home buyers in 2021.  All we need to do is add up the percentages for each quarter.  As musician Acraze sings, let’s do it to it!  

So, let’s add 14.9% for the 1^st qtr + 15.9% for the 2^nd qtr + 17.4% for the revised 3^rd qtr rate + 18.4% for the 4^th qtr.  That equals 66.6%...  Now that’s an eerily freaky number… Let’s move on.  Now, we take the 66.6% and divide it by 4 (for the 4 quarters in a year), which comes to 16.65% as an annualized rate, which represents the average amount of total homes that investors clutched away from home buyers in 2021. 

As a percentage, it may not seem too alarming… But, consider this for a moment.  According to Statista, an estimated 6,120,000 existing homes will be sold in 2021.  So now, let’s make it real with math.

Suppose we take 6,120,000 total homes sold and multiply it by 16.65%. That comes to 1,018,980 home buyers that had their homeownership dreams crushed like a horrific nightmare by prominent investors in 2021.  To put it another way, that’s 1 in 6 homes that investors pocketed in their ballooning portfolios.  That’s just sad…

Why would anyone, even a corporation, do that to someone?  So, let’s talk about the investor’s motivation to find out. 

The Motivation of BIG Real Estate Investors

It boils down to what they believe will happen with home appreciation and rental prices. 

In my last video, we talked about Zillow updating their housing forecast after saying their first predictions were way off the mark for this year. Zillow Group’s updated analysis says home prices will rocket to 16.4% by the end of the year, while Goldman Sachs thinks housing prices will go up 16%.   Apparently, the investors feel even more bullish than the bull that charges a matador!  Keep in mind every matador has a sword…  

Now, let’s take a quick look at rental prices.  Zumper’s 2021 annual rent report found rental rates jumped by 11.6% year over year.  To support Zumper’s findings, Corelogic provided a very in-depth analysis of the 2021 rental price growth. 

Using the CoreLogic National single-family rent chart, we can see between 2011 all the way up to the pandemic, rental rates stayed pretty consistent between 3%-5% variations.  Then, going into 2021, just like the price of homes, the rental rates skyrocketed, finishing 2021 with 12% rental growth for single-family homes. 

Molly Boesel, who authored the CoreLogic report, sums it up when she says, “Single-family rent prices in 2021 increased by more than three times the 2020 rate.  In addition, affordability challenges and limited supply created many barriers for prospective homebuyers.  These factors have driven elevated demand for single-family rentals and put increased pressure on the market as vacancy rates also hit historic lows.”

Meet the Key Players

Now it’s time to dive a little deeper into who the key players are pulling the strings behind the curtain.  On average, the investors fall into two classifications.  The first classification is called ibuyers.  The second is called institutional investors.  So that begs the question of what is an ibuyer and an institutional investor.  

Nerdwallet defines an ibuyer as an “instant buyer,” being a real estate company that uses algorithms and technology to buy and resell homes quickly.  Much like a flipper does in many ways, except this “convenience” comes with a very high price to home sellers.  Sellers, the devil is in the details.  Remember this and if you want to know more, click the card above after watching this video. 

The top ibuyer’s include companies like Opendoor, Offerpad, and RedfinNow, to name a few.  

Now here’s something interesting to know.  If the ibuyer cannot sell the house they just purchased in the open housing market, then they will sell it to an institutional investor.  In this article by Inman News, they highlight the fact that ibuyers sold up to 70% of the homes they purchased in 2021 in some areas to institutional investors.  Talk about having a built-in big business fail-safe in place. 

So, what is an institutional investor?

Investopedia says, “an institutional investor is a company or organization that invests money on behalf of clients or members.  Hedge funds, mutual funds, and endowments are examples of institutional investors.”   To put it another way, an institutional investor also manages real estate investment trusts or REITs for short. 

Before we bounce off the Investopedia page, they share 3 more key takeaways you should know. 

1. Institutional investors are considered savvier than the average investor and are often subject to less regulatory oversight.
2. The buying and selling of large positions by institutional investors can create supply and demand imbalances that result in sudden price moves in stocks, bonds, or other assets.
3. Institutional investors are the big fish on Wall Street.

Who are these big fish?  Stock Market MBA makes it easy to screen them with their list of 176 REITs, including their website's 20 major residential REITs.  I’ll drop the link in the description so you can check it out.

A case in point is this Wall Street Journal article sums it up in the headline, “If You Sell a House These Days, the Buyer Might be a Pension Fund.”

Earlier this year, CNBC interviewed the CEO of one of those REITs, Invitation homes.  The CEO is Dallas Tanner, and Invitation Homes has a market cap of just over 23 billion dollars as of Feb 2022.

Whoa… That’s news to me… People prefer a “leasing lifestyle???”  Ok, sure, I suppose different strokes for different folks.  At the same time, that’s not what the conversations people are having with me sound like.  They want to buy a home of their own and get out of the “leasing lifestyle.” 

What about you? Do you want to buy a house, or do you prefer the “leasing lifestyle?”  Let us know in the comments.  Thank you. 

By the way, I put the link to this interview in the description if you want to check it out for yourself later.

From the sounds of it, these big corporations prefer to make America for Rent.  But, unfortunately, they are putting profit before people versus putting people before profit.  It seems they didn’t get the word that there is no profit without people.

Here’s a vital fact of life: one should put people before profit.  The profit comes by focusing on helping people, or at least it should.  By putting people first, one can still reap the profit by concentrating on what’s truly important to the people.  Just my two cents.  Drop a line below with yours.  Thank you. 

Where Are They Getting the Funds? Let's Follow the Money Trail! 

They are receiving billions from investors like venture capitalists, their stocks, and real estate investment trusts, or REITs for short.

So, who are the ultimate cash cows with the power to turn off the cash flowing to publicly traded companies?  

The investors, right?  In this case, that’s you and me.  All of us who invest in stocks and mutual funds need to get honest with ourselves and where we invest our hard-earned money.  We can still can and should invest for a better tomorrow.  Let’s invest more intelligently by investigating what companies do with our money before investing.

The most disturbing part to me is the money many of us are investing into stocks that might include ibuyers and the mutual funds with REITs we’re doing to save money to buy a house or for retirement.  Yet, that money, our money, is being used against us when purchasing a home and against others, our fellow humans, when they aspire to do the same. 

Look, we’re always stronger and better together than we are not.  The moment we wake up and come together is the moment we take back our world and our lives.  Only then can we make the world a better place and one we’re proud to pass on to younger generations when our time here comes to an end.  So what will be our legacy to our kids?  Will it be one of anger and greed, with each person out for themself, or will it be one of treating each other with love and kindness and working out challenges together?  The choice is yours.  

How Will This Affect You?

Now, how will all of this affect this year?  It depends on if you’re buying a house or selling one.  If you’re buying a house, just know that you’ll be in competition with multiple cash buyers.  So clarifying why you want to buy a home and what you want in your new home is critical, along with your financial comfort zone, knowing bidding wars are highly likely.  Please don’t lose yourself.  Stay true to yourself. 

Consider your options… You, too, can compete with all-cash offers even if you don’t have the cash.  How so?  With the rise of companies called power buyers.  Offer Market defines a power buyer as a “home buying service that guarantees a buyer’s offer through a “cash-backed offer.” Of course, a buyer still must qualify for this type of program.  Power Buyer companies include Homeward, Knock, and New American Funding to name a few. 

When facing intense competition, it’s about considering all of your options. Better to have options and not need them versus needing options and not having any.  I hope this helps you.

If you’re selling a house, I ask you to look within before accepting an offer from an investor.  Yes, consider what is best for you and what will help you advance your life goals.  At the same time, please think about how challenging it is for homebuyers in the current housing market.  Will you still be able to achieve your goals by accepting an offer from a home buyer, a real person, even if it’s an offer contingent on an appraisal?  Only you can answer that question.  I hope you’ll consider paying it forward to homebuyers buying a house this year and in the future. 

Thank you so much for reading this post!  I'm sending you positive vibes everything goes your way! - Andrew Finney

Disclaimer: Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group (KRG) in Las Vegas, NV. Andrew's videos and blog posts are his own and do not necessarily represent the views and/ or opinions of KRG.