Tight inventory bogs down Wall Street’s homebuying

Single-family rental firms are retreating from the housing market. They likely won’t find much sympathy from the traditional homebuyers who are their competition.

Despite favorable conditions for the leasing of single-family rentals, some of the country’s top landlords are slowing their home purchases, the Wall Street Journal reported. Limited inventory and high borrowing costs — factors familiar to homebuyers — are dragging down Wall Street companies, too.

Single-family rental firms are partially facing the aftershocks of limited inventory. Their competitors, including traditional homebuyers, are willing to drive prices up to grab one of the few homes available on the market, but landlords risk missing their profit targets if they cast a higher bid. 

Landlords with at least 1,000 properties accounted for 0.4 percent of homes purchased in the United States during the second quarter, according to John Burns Research & Consulting. That share peaked at 2.4 percent two years ago.

“We write hundreds of offers every week at price points that we’d be willing to transact at,” Invitation Homes CEO Dallas Tanner told investors recently. “We’re striking out quite a bit.”

These landlords came into the market hot during the pandemic, taking advantage of low borrowing costs to dominate the market. At one point, institutional firms claimed a quarter of homes sold in cities like Miami and Houston. 

But market forces have turned the tide against them. In the first half of the year, Invitation bought 470 homes, but sold 675 as it found proceeds from leaving cash in the bank were outpacing property yields.

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The firm appears to be reserving its purchases for opportunities tossed by sellers eager to unload their properties. In July, Invitation scooped up a 1,900-home portfolio from Barry Sternlicht’s Starwood Real Estate Income Trust. It paid $645 million for the portfolio, significantly less than the price Sternlicht paid for the portfolio in 2021, which was slightly larger at the time.

AMH, once known as American Homes 4 Rent, also sold more than they bought in the first half of the year. David Singelyn’s firm is pushing against the market by building much of their own inventory, planning to add 2,200 homes that way this year.

— Holden Walter-Warner