Corporate ownership of single-family rental homes has been steadily increasing across the country, with some areas seeing more than 40% of homes for sale gobbled up by an institution.
It’s a phenomenon that has yet to hit the Lehigh Valley, but it’s coming, local Realtors say. What’s taking so long?
The reasons are myriad, but chief among them are location, location, location, and the Lehigh Valley’s relative lack of foreclosures, which allow corporations to swoop in and buy single-family homes at a reduced cost.
At least one Realtor in the Valley who specializes in rentals says it’s only a matter of time before they arrive.
Jack Gross, a Realtor from Cassidon Property Management in Bethlehem, said the issue was brought up during a recent brokers meeting with the Greater Lehigh Valley Realtors.
“One of the brokers did mention that this is going to be a prevalent thing across the country, and it’s going to come here at some point, which I wouldn’t doubt,” said Gross, who owns more than 70 rentals of all shapes and sizes. “But I’m not seeing that issue now that I’m aware of. I have seen reports in different parts of the country.”
A recent report from the U.S. House of Representatives Committee on Financial Services found the number of single-family homes bought by such real estate companies increased exponentially in recent years. The five biggest owners and operators of single-family rentals saw their stocks grow by more than 27%, or more than 76,000 homes, between 2018 and 2021.
Following the Great Recession, according to the report, corporate ownership of single-family rental homes grew 3% annually since 2010, with the third quarter of 2021 posting the fastest year over year increase in 16 years.
Before 2008, investors owned about 10 million homes, but none had more than 1,000 and many had fewer than 10 in their portfolios as smaller investors dominated.
Invitation Homes, one of the country’s biggest institutional investors, says it now owns 80,000 homes.
A May report from the National Association of Realtors shows institutional investors made up 13% of the residential sales market in 2021 with the median purchase price of institutional buyers typically 26% lower than the states’ median purchase prices,
The five biggest institutional investors — Invitation Homes, American Homes 4 Rent, FirstKey Homes, Progress Residential and Amherst Residential — own properties in several states, but none are in the Northeast.
Tim Tepes, a Realtor with Assist-2-Sell Buyers & Sellers Realty in Northampton, said these companies are concentrating on places in warm-weather climates in the South or West.
“Big companies like that are in the South, places with beaches and are popular locations,” he said, “like Las Vegas, Arizona, Texas, Atlanta, Florida, North and South Carolina.”
The reason is that real estate there is cheaper, Tepes said.
“Many people here migrate south and there are more opportunities for rentals and prices are cheaper,” he said. “We see that a lot.”
The congressional report found that in the third quarter of 2021, institutional investors bought 42.8% of homes for sale in the Atlanta metro area and 38.8% of homes in greater Phoenix.
Those markets have seen a larger amount of foreclosures, making it easier for investors to buy homes by the hundreds. A special concern was that a large amount of sales were in areas with large minority populations.
“A 2018 study found that increases in institutional investments in [single-family rental] homes in Atlanta from 2010-2015 were concentrated in older neighborhoods and were correlated with greater concentration of Asian, Latinx and Black residents,” the report said. “A 2017 case study of Los Angeles County found that middle-income neighborhoods with higher percentages of Black residents and lower home values were disproportionately affected by increased investor participation in the SFR housing market.”
Furthermore, the study found, rents increased along with eviction rates.
The average median gross rent in the five companies’ 20 top ZIP Code Tract Areas was $1,259, about 13% above the national median or $1,096. In Atlanta, larger landlords were 68% more likely than smaller landlords to file for evictions. Tenants also found it tougher to contact the larger companies, while smaller property owners may have a personal relationship with their tenants and attempt to work out a solution.
They’re trying to get as much cash as they can out of as many units as they can, Tepes said. “Unfortunately, that chases people from out of the area.”
The foreclosure factor may explain why the Lehigh Valley hasn’t been seen as an expansion candidate for the big institutional investors.
An April report from the Greater Lehigh Valley Realtors, using data from Greater Lehigh Valley Multiple Listing Service, indicates foreclosure/distressed homes have been an unremarkable part of the Valley’s market for several years and there has been a steady decline in the percentage within the market.
In 2021, distressed sales accounted for just 0.3% of home sales in the Lehigh Valley. That compares with 0.5% in 2019, the last full year before the COVID pandemic, and 1.4% in 2017.
While foreclosures are expected to increase in the Lehigh Valley in the near future as moratoriums brought by the COVID pandemic have expired, Gross doesn’t expect a major flood in the area that could attract the attention of institutional investors.
“We keep hearing, in some parts of the country, that there’s a shadow inventory of foreclosures that’s going to happen and so there’s a tsunami coming,” Gross said, “and I keep on telling people I don’t see it. I’m not aware of it because with the appreciation rates being what they’ve been for the last three years, you can pretty much sell it to cover your debt before you lose it.”
Gross said the Lehigh Valley is geographically blessed with its position on the East Coast.
“Are we recession proof? No, but we have some protections that other areas don’t have,” he said. “We have jobs that other areas don’t have.”
The Lehigh Valley also has an average median sales price — $280,000 — above the national average of $229,000.
The congressional report shows institutional investors tended to buy homes in neighborhoods with lower home prices and higher rents. The average median home value of the five companies’ top 20 ZIP Code Tract Areas was $198,766.
Morning Call reporter Evan Jones can be reached at [email protected].