Institutional homebuyers gained ground in December

Institutional investors modestly expanded their share of single-family home purchases in December, complicating President Donald Trump’s call to push big buyers out of the market.

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Large investors, those who own between 100 and 999 properties, accounted for 3% of all single-family home purchases and mega-investors, 1,000 or more properties, had a 2.8% share in December, compared to 2.5% and 2.3% respectively in the same period last year, according to Cotality’s latest update on investor activity in the housing market.

Overall, investors accounted for 30.3% of purchases, the same level as the year before. Small investors, with fewer than ten properties, saw their share fall from 15.2% to 13.9%, while medium investors, between 10 and 99 properties, saw their share grow from 10.5% to 10.8%.

“Fewer first-time buyers in the housing market mean more people staying in the rental market, and investors are responding to that demand,” said Thom Malone, chief economist at Cotality, in a press release. “The current landscape differs markedly from the pandemic-era surge fueled by rapid price appreciation. While real estate is no longer the ‘hottest’ asset, strong rental demand and the ability to secure acquisitions below list price are keeping investors engaged even as traditional buyers pull back.”

While affordability reached its peak highest level in four years in January it still remains below the historical average. That has potential home buyers are put under pressure to the rental market and helped investors receive big discounts when buying property to rent out.

To make housing more affordable, Trump earlier this year called for a ban on institutional investors buying single-family homes.

“People live in homes, not businesses,” he said in a social media post.

Congress recently passed the Housing for the 21st Century Act without the ban. But whether or not the offer would have made a noticeable difference is unclear, as the Treasury Department has not yet defined key terms such as “major institutional investor” and “single-family home.”

If the ban prohibits a single investor from owning more than 1% of the market, there will be relatively no impact. But if, for example, a cap of 1,000 homes were imposed on investors, the industry would see no more equity invested in it, which isn’t much as it stands, says Jake Keating, co-founder and partner at Backyard Ventures and former head of investment and strategy at Promise Homes.

“This is a lot of political posturing,” he said. “Trump … and the administration is really focused on the lack of affordability across the country in different sectors of the economy, and housing is clearly one of those sectors where this very easy story is told about the big, bad institutional [single-family residential] investor, when in reality they only own… 3%-5% of that market.”

Investor market share is expected to remain constant for the foreseeable future, with an expected seasonal decline towards 25% as residential property activity typically grows in the summer. The long-term outlook depends on interest rates, as a dip could reduce investor share, but demand for owner-occupied homes is unlikely to recover much, the press release said.