Another housing bubble is inflating — but unlike the one that burst in 2008, buyers contributing to this bubble are less likely to live in those properties. This time, investors are pouring money into the growing single-family home rental market.
Investors have been gobbling up distressed single-family homes in the wake of the Great Recession, which led to foreclosures on hundreds of thousands of homes. But as the supply of those distressed properties dried up, investors — including private equity firms and pension funds — are competing with first-time homebuyers in the resale market, the Wall Street Journal reported.
“You now have permanent capital competing with a young couple trying to buy a house,” John Burns, CEO of John Burns Real Estate Consulting, told the publication, noting that about one in every five houses sold is bought by someone who won’t live there. “That’s going to make U.S. housing permanently more expensive.”
Home prices are expected to climb 12 percent this year, on top of last year’s 11 percent hike, according to Burns’ firm, which told the publication that another 6 percent increase will follow in 2022. The pace of appreciation is akin to what happened in 2004 and 2005.
For an extreme example, look to Conroe, Texas, where D.R. Horton recently built 124 rental homes. The homebuilder rented those homes out and subsequently put the entire subdivision up for sale. A bidding war broke out in December, and Fundrise LLC, an online property-investing platform, won with its $32 million bid, which was submitted on behalf of about 150,000 individual investors.
The price tag was about twice as much as D.R. Horton typically makes by selling homes to the middle class, its CFO told the Journal. [WSJ] — Akiko Matsuda