- Institutional managers of single-family homes for rent usually sell houses to each other.
- New data obtained by Insider shows they are increasingly selling to regular people.
- It is a sign that the housing market is cooling, but don’t hold your breath for lower prices.
For the past few years, a group of real estate investors known as Wall Street landlords have been on a buying spree that captivated and outraged the nation.
Now, it appears as if they’re selling more of these homes back to regular homeowners.
The two largest publicly traded managers of single-family homes for rent, or SFRs, are on pace to more than double the number of homes they’ve sold to people instead of corporate entities, according to data exclusively provided to Insider by Attom Data, a housing data tracker.
The companies — Invitation Homes and AMH — have already sold 1003 homes this year, through July, to non-corporate buyers, according to Insider’s analysis of data from real estate tracker Attom Data. That’s more than these companies sold to mom-and-pop buyers for all of 2022 (760), and 2021 (498).
Traditionally, these large, institutional landlords prefer to sell big blocks of homes, which means trading inventory with other corporate landlords who also make money from renting. The group, which has included Wall Street firms like Blackstone (which spun off Invitation Homes), has been blamed for exacerbating the housing shortage that has pushed real-estate prices sky-high.
If this year’s rate of sales continues, Invitation Homes and AMH stand to double their sales to non-corporate buyers, versus 2022, and may even exceed their sales to individual buyers for any year going back to 2017.
One exception might be in 2019 when Invitation Homes sold 785 homes to non-corporate buyers, versus 225 sales through July of this year. Combined, however, the two REITS sales to non-corporate buyers for the first seven months of 2023 have already exceeded the 981 sales to non-corporate buyers from 2019, the data shows.
See the chart below for annual data going back to 2017.
Attom sourced the data from a range of public records. It removed from the dataset sales to buyers with corporate names, including anything with an LLC or Fund in it. It could be missing some sales because some property records can take 45 days to show up in the data, and because it’s possible that Insider’s request missed some subsidiary names for the two SFR giants, according to Attom Data.
An Invitation Homes spokesperson noted that the numbers were hit and miss, but that of the roughly 1,700 homes the company has sold from 2021 on, “all but 70 of them were listed on MLS for anyone to buy,” though not all of those were sold through the MLS. AMH declined to comment.
So what does this mean for home buyers, renters, and investors? As institutional investors step back from buying and selling to each other, it could increase inventory for mom-and-pop buyers, which could (theoretically) send prices lower. But the reality is that prices will likely remain high. Let’s examine the possibilities.
Big investors sell to the regular housing market
The biggest transaction news in the SFR market this year was Invitation Homes’ purchase of nearly 1,900 Sun Belt homes for about $650 million dollars, with more than three-quarters of the capital coming from cash.
The deal was notable given that institutional investors have largely stepped back from buying due to high-interest rates. According to Invitation Homes CFO Jon Olsen, the deal reflected a “meaningful discount to market value,” suggesting that selling large portfolios of homes is not as profitable as it once was.
Indeed, portfolios of single-family rentals are trading at big discounts to the value of their underlying real estate, which raises the question: Why sell these assets now and why to individual homebuyers?
Both Invitation Homes and AMH execs on recent calls noted that they’re selling in order to redeploy capital into better rental markets, often into new construction built-for-rent communities that are easier to operate and in higher performing locations.
Operational prices have increased substantially in some markets, due to rising property taxes and insurance costs. The lack of housing supply, which has kept prices high even as mortgage rates rise, makes selling homes in markets that cost more to operate rentals a profitable play.
“The market not having enough overall supply in the resale space has allowed us to, when we decided to sell homes, get really good what I would call kind of end-user sales prices,” Dallas Tanner, Invitation Homes CEO said during a July earnings call.
But these one-off sales aren’t nearly as easy, or cheap, as selling a large portfolio. Tanner said that though the company does well at selling to individual buyers, there are “frictional costs” to this method. Increased broker fees, the costs of renovations, and the time it takes to do these deals can eat into any profits that are gained by selling to individuals versus corporations.
Even still, Tanner told Wall Street stock analysts that the company expects to be “a little bit more aggressive selling some homes this year” to take advantage of current pricing.
What does it mean?
A potent mix of record-low interest rates, remote-work trends, and an influx of investors caused home prices to rise by almost a third from the spring of 2020 to June of 2022. And even though interest rates have shot up, and the market has slowed substantially, home prices have barely budged.
The problem is, there’s so little inventory in the market because of “the lock-in effect” on so many mortgages held by current property owners, Invitation Homes’ Tanner said. Homeowners won’t sell if they find that the current mortgage market means their dollars don’t go as far, which has decreased housing market inventory. As a result, Tanner said, prices have been “buoyed up,” even though rising interest rates should cause them to fall.
For Gary Beasley, the CEO of single-family rental sales and services platform Roofstock, the trend has opened up a new channel of sales. Roofstock has historically focused on portfolio transactions, but its analysis has found that selling on the MLS platform for individual home sales has become the better business model.
“Now, almost without exception, the best bid is to market it through local brokers,” Beasley said. The company has created a team it calls the Scaled Seller Services Initiative to take on the operational work of selling these individual homes at scale, partnering with local brokers. He’s already seen a half-dozen clients join the platform, with many more waiting.
Beasley surveyed a range of investors during a July trip to New York City. They said they don’t expect prices to fall. They think prices have largely stabilized, but they are waiting for interest rates to go down. Once that happens, deals will pencil out.
Meanwhile, the sales by Individual Homes and AMH, which equate to a few hundred extra homes sold this year, is unlikely to bring prices down, as they make up just a tiny sliver of the millions of homes that have been sold this year. America is short somewhere between one to six million homes, depending on who you ask, and home listings have cratered to their lowest level since 2012.
The recent sales trend also suggests rent prices could remain high.
In reporting earnings last week, Invitation Homes increased its core revenue guidance for the rest half of the year because its rent prices actually outperformed expectations. And AMH CEO Dave Singelyn explained why so many continue to bet on the sector: “The single-family rental sector remains on solid footing with durable and consistent fundamentals driven by the growing demand for single-family rentals, ongoing national housing shortage and challenging home affordability dynamics,” Singelyn said.
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