These 2 institutional giants went on home buying sprees during the Pandemic Housing Boom—now they're selling

May 16, 2023 ndowd

According to an analysis conducted by John Burns Research and Consulting, institutional investors—those owning over 1,000 homes—bought 90% fewer homes in January and February than they did in the first two months of 2022.

Look no further than American Homes 4 Rent, which in the first quarter of 2023 sold off more single-family homes (666) than it bought (312). That net decline saw the Las Vegas-based company’s portfolio shrink from 58,993 rental homes across the country to 58,639 homes.

Just a year earlier, in the first quarter of 2022, American Homes 4 Rent bought 1,131 homes and only sold off 171 homes. Back then, the Pandemic Housing Boom was still seeing a flood of institutional homebuying. Low interest rates, easy access to capital, soaring rents, and skyrocketing home values were just too good of a deal for mega investors to pass on.

Earlier this month, we learned that Invitation Homes, the largest owner of U.S. single-family rental homes, is also now a net seller right. In the first quarter of 2023, Invitation Homes bought 194 homes while it sold off 297. That net decline saw the Dallas-based company’s portfolio shrink from 83,113 single-family homes to 83,010 homes.

That’s a sharp reversal from a year ago when in the first quarter of 2022, Invitation Homes—which Blackstone helped to grow before divesting in 2019—bought 822 single-family homes and sold off only 147 homes.

Why are institutional investors, like American Homes 4 Rent and Invitation Homes, pulling back from the U.S. housing market?

It boils down to the fact that financial returns on each additional home added just aren’t that great right now after factoring in spiked interest rates and frothy house prices. Not to mention, rent growth has decelerated over the past year.

That sentiment was echoed by Tejas Joshi, director of single-family residential at Yieldstreet, which owns over 700 single-family homes. Interest rates on “floating” loans offered to firms like Yieldstreet are still in the 7% to 8% range, Joshi says. Those high interest rates, coupled with frothy home prices, mean that buying new single-family rentals doesn’t make a lot of sense right now for some institutional investors.

Through the first quarter, Joshi says, Yieldstreet has yet to buy a single home in 2023. That’s despite the fact that Yieldstreet would like to grow its single-family home portfolio from its value right now of around $200 million value to $1.5 billion by around 2028.

“If short-term [interest] rates came down around 4%, and if home prices were about 15% lower than the peak last year, that is a valuation that supports the equity return that investors need to make,” Joshi says.